Setting a base salary for salespeople is the most common question that plagues the mind of most of our clients when they are looking for salespeople so let’s explore the question, its nuances, and variables that can affect the answer.
(Please note most B2B companies are faced with high job market competition in the last 2 years. Therefore, commission only models are no longer an option for most companies but is still very viable in B2C)
- Why are you hiring this person: Firstly, the role itself has a lot to do with the salary in what experience, education, and natural talents are required to make the role profitable for you in the first place. Too many people want a High-End Sports car but want to pay for Toyota and this misalignment just wastes time and money.
- Do you have a clear system for success? The more well-developed your lead gen, sales systems and processes the lower risk for an employee. Ex. As a salesperson, if an employer says I will provide you 250 inbound leads a month and knows the closing ratios based on other reps then this gives me a large amount of security to accept more of a commission-based model.
In most cases, companies will say to the new hire; you get a territory, CRM and a mentor. Then they immediately send staff into the field where they need to figure things out or even worse try to build processes on their own after limited to no onboarding. These days are 20 years ago, not 2023. In this case, you need to update your systems, processes, onboarding, and lead channel development.
Now the core of the issue and my general rule of thumb is the following:
(Bills + 20%)
Find out from the potential sales candidate what are their monthly bills to live a comfortable life. They will give you an answer such as $5,000 a month. Simply add 20% and you have a base offer and yes it is that simple.
5k x 120%= 6k per month is the base salary
Commission (5%-20% of profit)
Now the hard part is commission and the model varies greatly by industry but there is a rule to go by. The commission should be from 5%-20% of profit after factoring in their salary, selling expenses, and overhead.
This doesn’t take into account the complexity required in some businesses with team selling, multi-departments, and more elaborate processes. The point is to give you a baseline to see what all industries can use to attract, retain and develop top talent and fair pay programs.
Most companies apply a threshold practice here for example:
Hitting certain levels of sales raises overall commission. First 500k- 5% of profit, 1 Million–6% of profit, 2 Million or more- 7.5% of profit.
This can also have an overall company scale to make it a team activity and make sales people think more holistically about the whole business.
Building compensation is never easy but my hope is this takes some of the pressure off for you and helps you attract, retain and grow top talent for your team.
If you have any questions please feel free to reach out.