SEM Business Plan Help

[fisher318]

Ok, after running a pretty successful SEM service for several clients over the last 6 years with my 2 partners, we want to bring in 2 new sales reps so we can focus all of our time on the services we provide our clients. We have 2 very well known friends who are great sales people. They came to us with the idea of working for us on straight commission. Our services sell for a set up fee along with a month-to-month residual recurring fee.

Can anyone offer any sort of guidance as to what would be a fair commission to pay out? Thanks in advance for any help!

[nullvariable]

having worked on commission before I can say that no system is perfect. I would suggest that you give them a percentage of the revenue and it may be in your businesses best interest to continue to provide them with a tiny tickle down of the continued revenue stream. They will have some income on bad months (once they've gotten rolling) with this system and will want to maintain their positive customer relationships building your long term brand. I would suggest that you plan on tweaking the system over a period of time and be open to adjustments. Just be careful about upsetting the balance too!

[jawn_tech]

It's all about what you negotiate. First make sure there's an understanding that the commission is a percentage of profit, not the dollar amount of the sale. Take into consideration the cost figures, including what the ongoing maintenance / residual fees, the wages of anyone else who would be handling the clients, etc.

Are they going to be on call, the face the client deals with continuously? IMO, between somewhere of 25 - 50% profit for what they bring in.

If it's more of a "finder's fee", a one-time sales pitch then turning the client over to the company, 10 - 20%.

A quote my father used to always tell me, "you don't get what you deserve, you get what you negotiate".

[blogdawg1]

How much do you think they should "sell" in a year? You can base your plan on that. But I would think a decent base and 5% to 15% would be fair. You can give incentives based on reaching certain goals too.

[CompuGeneration]

Ok, after running a pretty successful SEM service for several clients over the last 6 years with my 2 partners, we want to bring in 2 new sales reps so we can focus all of our time on the services we provide our clients. We have 2 very well known friends who are great sales people. They came to us with the idea of working for us on straight commission. Our services sell for a set up fee along with a month-to-month residual recurring fee.

Currently you're splitting the pie 3 ways. Also sounds like you don't have employees at the moment. Introducing 2 sales people would be your first "employees".

I assume most of the work/costs are front loaded for new clients. This would involve setting up the campaigns, corresponding with your clients to get plans nailed down, etc. This is probably why you have a setup fee.


Are they going to be on call, the face the client deals with continuously? IMO, between somewhere of 25 - 50% profit for what they bring in.

If it's more of a "finder's fee", a one-time sales pitch then turning the client over to the company, 10 - 20%.

A quote my father used to always tell me, "you don't get what you deserve, you get what you negotiate".

25 - 50% of the profit is way too much, in my opinion, even if they are doing continuous support. You'll be doing all the work, maintenance, and problem solving. Why would you want to get someone else rich on your back... might as well get a regular job.

A finder's fee of 10 - 20% sounds more reasonable but puts no onus on the sales team to provide realistic expectations to potential business. You want your clients to stick around for more than a couple months.

I would suggest you setup your sales team commissions in the following manner;

1) small one time new client finders fee
2) residual income for the next 6 months
3) smaller residual income for the next 6 months after that
4) smaller residual income for the lifetime of the client after that

If the client leaves at any time you obviously stop paying commission. As well if the sales person decides to leave you also stop paying commission to them. If you don't want to outright STOP paying them commission make sure you have an end date in mind (1 month, 3 months, 6 months after they leave). I would also make sure that commission is paid on the payments of your clients, not what they are billed. Sales that you can't collect on shouldn't cost you money.

Example

Sales guy Bob gets paid the following;

$50 for each new client he brings to the company.
15% commission on each account for their first 6 months.
10% commission on each account for the 7th - 12th months.
5% commission on each account after 1st year for their lifetime with the company.


I think this type of arrangement would work for both the sales people as well as the company. Often new clients will speak with their first point of contact whenever there are problems with their service. This is usually sales people. They are compensated for this by getting paid their finders fee as well as an increased commission for the first 6 months of the client's business.

The longer the client is with the company, typically, the less they will be speaking with sales. Therefore their commission steadily drops.

[fisher318]

Excellent advice guys, I appreciate it. I was thinking as well probably doing a sliding scale of 15%-25% of the initial set up fee, depending on the volume that they produced, and then an ongoing 10% residual as long as they remained an employee and the client continues to pay. I like the idea of dropping it to 5% after 6 months or a year.

[SandOtter]

I just had to pipe in as a former salesperson...

Compu's statement:


Why would you want to get someone else rich on your back... might as well get a regular job.


I think that's a little one-sided. IMHO, you both should get rich off each other's backs!

A commission should reflect a good-faith estimate of the value of each components input and benefit from that input. Ask yourself this, did you deserve the residual profit that you got when handling these accounts by yourself, regardless of how long they were with your company? Why shouldn't your new salesperson benefit too? I look at it as income you would have never received if not through the salesperson's effort. With a continued residual commission equal to the starting commission, a salesperson would then be invested in that client remaining a client long-term, rather than be in a perpetual search for new clients for that larger commission. At least consider structuring the residual commission so that they increase over the years they are with your company. That way, the salesperson will naturally hang onto the clients that pay a larger commission and would be happy to turn over less productive accounts to new salespeople for them to build.

Please keep us informed of the outcome...expecially long-term. I'm curious if you will see short-term benefits with long-term client loss. And a higer turnover rate in salespeople. Good salespeople are a treasure that keeps on giving. After all...they're just tryin' to make a good living too!

(Sorry Compu, I'm not trying to insult you, just honestly bringing up how my idea contrasts with yours in this one, small area.)

[jawn_tech]

Great post, SandOtter.

Offers great insight to fisher318 and anyone else what to consider and expect when working with a sales force. If you want a salesperson of high caliber, it's much more profitable to offer good incentive than to merely offer to throw someone a bone and ask them to go out and bring in large accounts.

Like I said, you get what you negotiate. Don't limit yourself to thinking you'll never go higher than paying peanuts if you really want your company to grow.

Again, take your own hours involved in the "work" of the project and pay yourself accordingly, and consider that as part of the cost. The commission comes from the profit (not cost of the work), and better to have the sales person get a good share than to find yourself without the account completely.

[SandOtter]

Why, thank you jawn_tech Aww, gee, shucks...'twern't nothin'....(blush).

One other thing that was so important to me when I was selling was to receive a figurative "bone" every once in a while. If you like what a particular salesperson is doing, give them a hot lead. When that lead pans out, a good salesperson with a full client-load should look at their clientelle and give up one in return for a new salesperson to work on. Getting that lead always made me feel like management appreciated me. It made me feel so loyal that when headhunters for other companies approached me to work elsewhere, it wasn't worth it. I was happy.

[CompuGeneration]

I have a few comments and small disagreements of my own.


I just had to pipe in as a former salesperson...

A commission should reflect a good-faith estimate of the value of each components input and benefit from that input. Ask yourself this, did you deserve the residual profit that you got when handling these accounts by yourself, regardless of how long they were with your company?

I don't think this is a fair question. fisher318 owns part of the company with his two partners. Of course he deserves the residual profits from his clients. This can't be disputed.


Why shouldn't your new salesperson benefit too? I look at it as income you would have never received if not through the salesperson's effort. With a continued residual commission equal to the starting commission, a salesperson would then be invested in that client remaining a client long-term, rather than be in a perpetual search for new clients for that larger commission.

Whether the salesperson realizes it or not this is a team effort. He can bring all the sales in the company can handle. If management is incompetent or makes poor business decisions he may still be out of a job. I agree that sales people should be compensated fairly. I don't think they should be given the keys to the company vault.

If the sales person is going to be the main point of contact for each account s/he handles then I would agree that commissions should remain constant and even a salary be paid. For example, if you were selling car parts for a manufacturer to a car parts supply chain. The sales person would be in constant contact with that client. S/He would deserve INCREASED compensation the longer this business remained a client and the more product they purchased.

I don't believe this is the case for fisher318's business. He is providing a complex and involved SERVICE. Once contact has been made with the client and services arranged the account is handed over to the people completing the services. As this is a long and involved process, constant contact and account manipulations (service changes etc.) are suggested and explained by the employees providing the service(s).


At least consider structuring the residual commission so that they increase over the years they are with your company. That way, the salesperson will naturally hang onto the clients that pay a larger commission and would be happy to turn over less productive accounts to new salespeople for them to build.

Again, in this business (SEM services), I don't see this being a fair payment structure. Using this stucture the sales person may consider it, at a certain point in time, more important to keep his existing clients then to find new clients.

As a side note clients don't like being shifted around to different point(s) of contact (especially if you're being handed off to someone new(er) in the company).


Please keep us informed of the outcome...expecially long-term. I'm curious if you will see short-term benefits with long-term client loss. And a higer turnover rate in salespeople. Good salespeople are a treasure that keeps on giving. After all...they're just tryin' to make a good living too!

I don't think that customer retention should be the responsibility of the sales team. The sales team should go out and get sales. Account managers should look after the interests of the client and keep them happy. Account managers are liaisons for the clients that keep the wheels turning. Poor sales techniques will obviously hurt the account managers ability to do their job successfully and vice versa with other departments.

fisher318 has a smaller company and currently he and his partners are the main (only) points of contact. If he wants to unload that responsibility onto his sales people then I suggest he pay them a salary plus commission.

But from his original post he said these sales people want to work for straight commission. They want to sell... For this reason I think a sliding scale (decreasing over time) payment structure is appropriate.


(Sorry Compu, I'm not trying to insult you, just honestly bringing up how my idea contrasts with yours in this one, small area.)

No offense taken. We're all entitled to our opinions. Expressing them helps us learn from others and even helps shape new ones!


Great post, SandOtter.

Offers great insight to fisher318 and anyone else what to consider and expect when working with a sales force. If you want a salesperson of high caliber, it's much more profitable to offer good incentive than to merely offer to throw someone a bone and ask them to go out and bring in large accounts.

I agree. You definitely get what you pay for. From what I understand it seems like fisher318's friends want to work strictly as sales people on straight commission. This sounds more like an affiliate than an employee. Therefore they get paid accordingly.


Like I said, you get what you negotiate. Don't limit yourself to thinking you'll never go higher than paying peanuts if you really want your company to grow.

Again, take your own hours involved in the "work" of the project and pay yourself accordingly, and consider that as part of the cost. The commission comes from the profit (not cost of the work), and better to have the sales person get a good share than to find yourself without the account completely.

The commission becomes a cost of the work. Tracking commissions and paying commissions involves some level of work. There are costs associated with that work.

No matter what agreement you settle on make sure you're comfortable with the amount you'll be paying and plan your cash flow accordingly. Residual commission checks only get bigger (if your sales team is doing their job)...

[SandOtter]

Hey Compu...gee, so much to respond to but I'll try to explain my thinking...out of order though.


The sales team should go out and get sales. Account managers should look after the interests of the client and keep them happy. Account managers are liaisons for the clients that keep the wheels turning.

Obviously, you work for a much larger company than I did. Where I worked, the salesperson IS the account manager! This might also explain why you think a 10-15% commission is a living wage. Your clients must have much bigger budgets. But, come on...if you're working with big budgets, a $50 finders fee is almost an insult.


If he wants to unload that responsibility onto his sales people then I suggest he pay them a salary plus commission.

I agree. Or maybe a fair "guarantee" that comes into play on months that their commission doesn't provide them a minimum amount of income. This is particularly useful to help new salespeople get over the hump when just starting out.


I don't think this is a fair question.

Why not? What is different in the equation from when the owner beat the bushes for accounts versus a salesperson (except the owner is now free to pursue their own interests and still make a profit from the salespersons blood, sweat and tears)?


Of course he deserves the residual profits from his clients. This can't be disputed.

I don't dispute that the owners should receive the bulk of the residuals. I disagree over the split. Using your example of 15% residuals for the first 6 mos., the owners are keeping 85% of the residual profits (remember, costs have already been covered)...not much of an incentive for a salesperson to put too much effort into maintaining the account. I mean, if you want good people to hang around, they need to make a living.

You mention that this is a team effort. You're so right. But, rewarding sales (the life-blood of your organization) with, I'm sorry, puny commissions is counter-productive. Management will spend so much more training, and training, and then training more new recruits. It takes a lot of the fun out of the project, nevermind costs a bundle. It also postpones those profits from being generated in the first place. It's the owners that have the keys to that vault.



Using this stucture the sales person may consider it, at a certain point in time, more important to keep his existing clients then to find new clients.

This is one of those winnowing the chaff from the grain things. You will have people that will sit on their keister and think the money's gonna keep rolling in. That's where your training comes in. 20% of your business falls away each and every year. The key to survival is prospecting. NEVER stop prospecting. You should leave a 20% hole in your clientelle list that always affords you time to prospect.


The commission becomes a cost of the work. Tracking commissions and paying commissions involves some level of work. There are costs associated with that work.

No, actually the commission is based on profit. Those expenses are already factored in before the commission.


No offense taken. We're all entitled to our opinions. Expressing them helps us learn from others and even helps shape new ones!

So right again...Thanks for being a gentleman/woman! Some people are not.

[CompuGeneration]

Hey SandOtter, I think I have a better understanding of where you're coming from. Let's clarify a couple things here.



Obviously, you work for a much larger company than I did. Where I worked, the salesperson IS the account manager! This might also explain why you think a 10-15% commission is a living wage. Your clients must have much bigger budgets.

I haven't worked in a big company before. Biggest I've worked with had about 50 employees. In that case the average ticket was about $25 / month. I wouldn't call that substantial.

I assume fisher318's company would average somewhere between $200 - $500 / month for their services.


I don't dispute that the owners should receive the bulk of the residuals. I disagree over the split. Using your example of 15% residuals for the first 6 mos., the owners are keeping 85% of the residual profits (remember, costs have already been covered)...not much of an incentive for a salesperson to put too much effort into maintaining the account. I mean, if you want good people to hang around, they need to make a living.

Maybe this is where the disagreement stems from. Considering it would be hard to calculate profits on a case by case basis (also very time consuming) I was saying 15% of the gross sales would be the commission. Again this would not really be on the gross sales but on the payments made by the client.

[SandOtter]

yup, huge difference! we're not so far apart after all.