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The Right Way to Think About Sales Commission Structure

The Right Way to Think About Sales Commission Structure

  • October 13 2016
  • Galen Dow
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sales_commission.pngWe had the good fortune to attend a Boston Enterprise Sales meetup featuring Tom Lavery, CEO & Founder at Jiminny. Tom grew Reward Gateway from no customers to over 1200 customers over 8 years. He has seen the good and the bad in building a great team and growing the business.  He candidly shared the challenges, the missteps and the successes along the way and boy was he full of great advice!

One standout point in the Meetup was in a Q&A where the group delved into Sales Commission Structure. Reward Gateway had a challenge in it's early days that many startups face. They had growth opportunities in SMB, MMB and Enterprise accounts. Being that they were starting in the UK, they needed to attack each of these markets in order to meet their sales growth goals. Since their SMB and Enterprise customers had different needs and buying processes, they formed a sales team to tackle each market.

What began to happen is something that we've seen in many B2B businesses. The SMB team members wanted to 'get promoted' to the Enterprise team. They saw Enterprise as more glamorous sure, but they also saw that the Enterprise deals were larger, and therefore came with larger commissions.

What Tom and his team did to address this we thought was striking and useful to think about. However, what was really informative was his team's thought processes to reach this solution.

Tom understood that the markets that they were addressing were equally important to reaching their sales goals. He also assessed that the skills, abilities and knowledge required to address Enterprise vs SMB customers weren't more advanced, or more valuable, they were simply different. The fact was that someone who could crack open and close a SMB account was using a different strategy set then someone who was targeting larger businesses. These sales reps were very valuable, right where they were.

Early in the company they established a sales focused culture, where any new deal closed was viewed equally as a win. A SMB sales rep would get the same level of internal support as an Enterprise Rep. Constant internal communication about the value of ALL customers ensured that all Sales Reps felt equally valued.

Of course, in sales money talks! So Tom and his team did something that we consider somewhat radical. They paid out sales commissions equally for SMB and Enterprise deals. A great SMB Sales Rep could make as much, or more than an Enterprise Rep.

Of course, this affected the margins on the SMB revenue, and since Reward Gateway is a SaaS business it definitely impacted the breakeven time for SMB customers. They did have the advantage of having a 96% retention rate, so they had lots of confidence that eventually nearly all signups would turn a profit. Still, this is a pretty radical idea.

How on earth did they reach this solution? They prioritized their goals for their commission program in this order. Customer > Sales Rep > Company. Huh. Sales Commissions impact customer experiences! We've been doing this for a long time, and amazingly, hadn't heard anyone prioritize their commission structure this way.

What their team decided was that turnover from the SMB team wasn't just affecting their own business. It was affecting their potential Customers experience in the buying process. Since the buying process sets expectations, it affected the entire SMB Customer experience. Rewarding SMB reps in this way ensured that the SMB Customers got just as good treatment as Enterprise Customers.

Our takeaway? The next time you are building a sales commission structure, and the CFO is in the room. Write this on the whiteboard as a goal:

Customer > Sales Rep > Company.

You can get other great ideas from Tom's blog Sales Shake.