Why pay fixed compensation to salespersons?
Compensation is pay for performance and outcomes.
Sales teams are employed to win new business.
They can be compensated when a sale is made.
Why then pay them any fixed compensation?
The case for fixed compensation for salespersons
Aside of bringing in a purchase order, salespersons participate in a range of activities, some towards making a sale and others as part of organization building.
Being available predictably and regularly at work
Participation in pipeline creation - events, promotions, & prospecting.
Ensuring continuity through a sales cycle.
Involvement in long lead time or low probability deals which are strategic to the employer
Maintaining confidentiality of sensitive information
Ensuring transparency of and sharing critical information
Being an ambassador for the employer
To ensure these, a fixed compensation is paid.
he greater the participation required in these activities, the higher the fixed compensation.
i. Predictable and consistent availability
A retail store opened on Monday morning. Half the sales team was missing, and customers were queuing up to be served.
A key account IT services salesperson made his quota for the year in two quarters and opted to work only two days a week thereafter.
Businesses which require the regular presence of their sales team to serve prospective clients predictably will pay for it - as fixed compensation. Call if pay for attendance.
ii. Participation in Pipeline creation
Building a pipeline of opportunities can require activities ranging from strategizing, business development, event participation, and cold calling.
Budgets fund this process of pipeline creation and compensate those who participate in it.
A smart phone manufacturer is a market leader, identifies potential prospects and assigns qualified leads to salespersons. A furniture retail store has predominantly walk in customers.
In both these, the participation of the salesperson(s) in building the sales pipeline is low – so will be their share of the pipeline budget.
For sales of complex products, technology services, and infrastructure projects, salesperson(s) are required to actively engage with influencers and potential buyers to identify deals to bid for and are very involved in the process of pipeline creation.
The greater the expected contribution of the sales team in building the pipeline, the higher their share of the pipeline creation budget – and paid as fixed compensation.
iii. Ensuring salesperson continuity through the sales cycle
The sales cycle for the smart phone manufacturer typically wraps up in one customer interaction. In the event it does extend beyond that, the feature set and pricing are so standard that any salesperson can pick up the thread and continue the discussion with a prospective client.
A salesperson has acquired knowledge of requirements, competitive landscape and built relationships with buyers of a complex technology deal. Ensuring her/his continuing presence can be a competitive advantage for his employer.
If it is, then the employer will pay for this continuity of presence.
iv. Participating in long cycle time sales
Prospective clients coming to an electronics store make a decision to buy or not within a couple of days from their first visit. Since the sales cycle is short, paying salespersons a substantial part of their compensation linked to the sales made within the bi-weekly pay cycle is a viable option.
On the other hand, complex product, IT or infrastructure deals may have cycle times of many months, sometimes years. Opening new markets or selling new product categories can have similar long sales cycles.
These sales will not close within the bi-weekly pay cycle.
A fixed pay can compensate salespersons for their efforts and ensure a willingness to be engaged in long cycle time pursuits without being weighed down by money worries.
v. Low probability deals
There are some deals which have long odds, and at some time you may even be sure that it’s not going your way.
Still, as an organization decision or norm, it may want to see the sales cycle through.
Want the salesperson still involved even if she / he is not going to make any variable pay
Pay them for time and opportunity cost in the form of fixed pay.
vi. Keeping sensitive information confidential
Pipeline and deal information are valuable. Organizations will want to keep them under wraps.
The greater the value, the more the investment to keep if confidential.
Part of this investment will be directed towards individuals who have access to this confidential information.
Salespersons and deal teams being among the prominent ones.
Call if pay for fidelity and confidentiality.
vii. Transparency of information
Salespersons are likely to have the best insight into a sales pipeline, pursuit status of deals, and feedback from potential customers.
There could be other stakeholders in the organization who require access to this information in the performance of their work.
It could be the deal team crafting a bid, a sales leader aggregating and presenting business outlook, or a finance leader assessing ROI of the investment in sales.
A part of fixed compensation is paid for ensuring collaboration & this transparent flow of information.
viii. Be an ambassador for the employer
IBM expected every salesperson to wear a formal suit. A prominent TV sales channel expects incoming calls to be answered within 3 rings. Hearing “Have a good day” has become a norm at the end of a checkout in a retail store
These are examples of behaviors which organizations want their employees to demonstrate as part of culture and brand building. Employees, and more so salespersons, who are engaged with the external world, are ambassadors of the organization's culture, values, & vision
This is yet another reason they are also paid a fixed compensation
These are examples of behaviors which organizations want their employees to demonstrate as part of culture and brand building. And they pay their employees, including their salespersons for it.
Employers may require the participation of their sales teams in activities aside of closing a sale. Some are essential to getting to a sale, others, important to organization building and culture.
These could include participation in events and trade shows, in pursuits with long lead-times, ensuring confidentiality of information, sharing information transparently with peers, or simply showing up predictably.
For all of these, they have to be compensated in a form separate from pay linked to a deal win.
And that is why they are paid a fixed compensation.
You may also want to read Getting the most out of your sales team