All I Think About Bonuses After 29 Years in Sales

• What to do with salary risks?

• What should bonuses and bonuses be?

• How not to undercut or overpay?

In this article, I tried to analyze my experience of working with different financial motivation schemes in an interesting and thoughtful way.

It’s easy to imagine how many times I’ve seen how employers try not to pay sales managers and vice versa – how managers try to get something they didn’t agree on. Salary, like any free price, is always a compromise between the seller and the buyer. In order for the employer to be happy to pay bonuses and the sales manager to receive them, you need to understand the logic of reasoning on both sides. Let’s talk about the employer’s logic.

So, let’s start with the frame part. There is a rather complex contradiction associated with it. Salary always means salary risks for the employer, which he does not want to take on. However, I am forced to do this in order for the vacancy to meet the candidates’ expectations.

Two types of salary risks can be distinguished. The first is that material motivation requires material costs, but does not provide motivation. Those. the employer is obliged to pay a certain amount, but the employee is not obliged to work it. The second risk is that, despite all the efforts of the employee and the salary paid to him, there are still no sales. Obviously, it will be impossible to return the costs.

In the first month, the manager doesn’t seem to have to sell anything yet. In the second, he has a lot of groundwork and real expectations that significant amounts will come from day to day. In the third month, the manager says: “Yes, there are no sales. If you want, fire me.” And the manager is faced with a difficult choice – to really fire and lose the efforts and funds invested, or to wait a little longer in the hope that something will happen.

From the point of view of the profitability of the sales department, salary risks are the main channel of losses. You cannot bear such risks, because scaling with them is impossible.

If you reduce the salary, it will be almost impossible to hire effective sales managers. If you increase it, the risks increase. They are especially noticeable when the transaction cycle is long and the contract price is high. Moreover, it is in this configuration that candidates have the highest salary expectations.

Some employers are trying to hire minimum wage employees. They reason that if a manager is confident in his ability to sell, then salary does not play a big role. Plus, with the help of a small salary, there is hope to insure against employees who have no intention of selling.

The problem with this approach is that the employee has one source of income and cannot diversify. Since his salary depends on sales, he wants to have all the necessary resources for this:

• Good training on product and processes within the company;

• Possibility to place a reserve in the warehouse;

• Bring a presales support engineer to the meeting;

• Get to the CEO and directly resolve an issue;

• Be present at the stand if the company is participating in the exhibition, etc.

A good salary increases the chances that the candidate who is hired will not be abandoned and will receive everything he needs for big sales. Therefore, experienced managers simply do not apply for vacancies with low salaries.

The employer’s task is to indicate a competitive salary in the vacancy and, in the future, keep his word and not deceive the candidate.

This is solved using the logic laid down in the Labor Code. It says that if an employee does not go to work without a good reason, then he is not paid for that day.

Let’s try to continue this logic and answer the question of what will happen if the employee still went to work, but did not work. For example, a turner crossed the entrance but did not reach the machine. Does he need to pay for this day? From a legal point of view, everything is complicated. And from the point of view of entrepreneurial logic, yes, but not based on the full salary.

Let’s continue to reason. If the turner stood at the machine, but did not sharpen what was needed, or simply in insufficient quantities. Do I need to pay for such a day? If we translate the turner metaphor into sales management, two conclusions emerge:

1. There are no unconditional salaries. To receive any salary, certain conditions must be met.

2. It makes sense to divide the salary into parts and tie it to several conditions.

Thus, several types of salaries appear.

Composite salary

The first part of the salary can be paid simply upon the employee’s arrival at work. The second is if the employee is working at work, that is, fulfilling intensity indicators (calls, meetings). And the third is paid if the employee does what he was hired for – performance indicators. In our case, it’s a sales plan.

If we take a salary of sixty thousand rubles as an example, then it can be divided into three equal parts: twenty for going to work, twenty for the call plan, and twenty for fulfilling the sales plan. Plus, a percentage of revenue or profit so that when the plan is implemented, the total income will be 120-150 thousand rubles.

The described scheme is the most logical, but the most rigid and is rarely used in practice.

Cumulative salary

It is used where there is a low check with a high margin, a short transaction cycle and a short period of time for the sales manager to reach the plan. According to this scheme, all money received from clients from the beginning of the month goes into the manager’s salary, and, after the salary has been accumulated, the manager receives a standard percentage from the remaining transactions.

In this case, it is difficult to link intensity or efficiency indicators to wages, so these indicators are often managed through the distribution of the incoming flow of applications.

Regressive salary

It is used where a manager can form his own client base and make sales to old clients.

The employee is paid a substantial salary for the first two to three months. This is a kind of advance. At the end of this period, according to the logic provided by the employer, the manager must reach an acceptable level of income through sales. If this does not happen, then the employer’s salary risks are reduced by reducing the salary. This makes it possible to increase the waiting period for sales in order to be more likely to return the investment.

For an employee in this scheme, the level of risk is also reasonable, because on the one hand, the employer pays for testing the hypothesis of whether sales will happen or not, on the other hand, if sales do not happen, then they will have to quit anyway.

Proportional salary

Represents a proportional payment of salary depending on the implementation of the intensity indicator. For example, if the target is met by 90%, 90% of the salary is paid.

The scheme is often used for remote sales managers. With mutual agreement, the manager can switch to “part-time”. In this case, the following are proportionally reduced: intensity indicators, salary and sales plan.

This, in my opinion, is the most adequate scheme, provided that the manager has no obstacles to meeting the call standard. Such obstacles may be non-core workload, technical difficulties, or lack of a base for calls.

Bonus for completing the plan

In a composite salary, this bonus is included in the salary itself. However, if the manager has fulfilled two plans, then it is logical to pay an additional amount equal to the same part of the salary. In other cases, a fixed amount is determined, which is paid in full when the plan is fulfilled. Accordingly, when two plans are implemented, two such amounts are paid, etc.

The plan is a “bar” indicator. It’s either done or it’s not. Consequently, the bonus for completing the plan is either paid in full or not paid at all.

The adequacy of the plan is the talk of the town. Raising the target every time the manager has met it is a bad sign. This is just one way not to pay the bonus. Typically the plan is reviewed once a year or less.

To determine how feasible a plan is, it needs to be decomposed. Let’s imagine that four trades are required to complete the plan. Taking into account conversion, to conclude one transaction, you need to conduct, for example, three. It turns out that there should be 12 deals in active development. Each transaction requires an average of 10 calls and one demonstration. In total, this will require four hours of pure time. Multiply by 12 trades, you get 48 hours. There are an average of 168 hours per month, 48 of which are spent on negotiations. In my opinion, such a plan should be feasible. This is a very rough calculation, but it will give an approximate picture. It hardly makes sense to calculate more accurately.

Sales bonus

The simplest, and most correct, in my opinion, way is to pay a fixed percentage of all sales.

It is advisable that the percentage be calculated on receipts rather than on revenues or profits. Receipt is money received into the account. Revenue is money spent, i.e. those for which obligations are fulfilled and closed by acts. Profit is what is left after that.

With one of my clients, I saw how the bonus was calculated from the profit from the project, while the project itself lasted from six months to a year and its profitability could only be calculated at the end. Sometimes it was negative and the manager did not receive the bonus. Needless to say, such a motivation scheme is rather demotivating.

In conclusion, I would like to say that a logical parity scheme of material motivation indicates several advantages of the employer at once. Firstly, he is used to working long hours; secondly, he is used to fulfilling obligations; thirdly, the company is managed by experienced managers; fourthly, the company manages its finances, which means they most likely exist.

How do you structure your motivation scheme?

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