Forget the going rate. Forget what you have paid in the past or what your competition might be offering. Instead, ask yourself this one question first:
What size check would you willingly write for the results you are asking them to generate?
In other words: What would you pay for X sales results? Once you know that number, start your compensation plan there. This is the initial “upper limit” you would be willing to offer for a risk-free result. Once you have that figured out, it’s time to ask a few more questions.
Once you have a good idea of what you’re looking for compensation-wise, it’s time to create a draft compensation plan. I like to look at it from a few different angles on a spreadsheet. First, the best realistic sales case scenario. This is where the salesperson meets or exceeds your expectations and sales goals. How will the company feel about paying this amount of money for this level of sales results?
Next, you want to look at the worst-case scenario. What is the minimal level of sales results the salesperson will need to produce before you fire them? Is this minimal level of sales results enough to keep your salesperson (at least long enough for them to improve and earn more)? Is the amount of compensation worth the value created by the salesperson for the company?
And, lastly, look at the case of the most realistic sales, which is somewhere between the best- and worst-case scenarios. Does this work for the salesperson? Does this work for the company?
In an ideal world, all of your sales hires will exceed your expectations and bring in more business than you expected. But in reality, you will find both good and bad hires. And some will try to game the system. This is why it’s important to take a moment to think through your sales process and your reporting systems to prevent potential abuse of the system. How could a savvy salesperson game the comp plan? What systems and processes could you put in place to protect all parties from these tempting behaviors?