Ask a Mentor: What is the Sales Commission Structure for MSPs?
Each Tuesday, MSPmentor’s Ask a Mentor service publishes a reader question and invites you to weigh in with recommendations. This week’s question comes from a Florida-based seeking some information on sales compensation strategies. Here’s the question and our reply…
Question: The reader states: “I never heard from you. Do you have any information on this topic? The average base pay and commission structure for salespeople in this industry.”
Answer: Sorry for the belated reply. We get back to everyone but our inbox is flooded. We don’t have average base pay at our fingertips. Plus, we think it would be important to segment the data points — base pay would certainly vary based on (A) region, (B) size of MSP, (C) years of experience, (D) size of sales person’s budget and (E) target market, among other factors.
All that said we do have a great tip regarding commission structure. But we can’t take the credit. To see a potential MSP sales compensation plan, check out this guest blog from Nimsoft VP and GM Phil LaForge.
Readers: Admittedly, I’m just a blogger. You’re the experts since you’re dealing with the service provider industry every day. Feel free to weigh in with a comment below. Or, to submit your own question, simply visit our Ask a Mentor page. We’ll post a new reader inquiry each Tuesday. And we’ll reply privately to you as well.
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Ryan Morris of IPED did a webinar in December on sales compensation. He focused on sales compensation from a financial perspective–what should you pay your saelspeople, motivating them to make sales and still allow the company to earn a profit. The slides and a recorded version of this presentation are available through MSP Partners, which is now part of CompTIA.
A few sales comp rules of thumb:
– designed to drive desired behavior, activities (appts etc) and results ($’s)
– highly leveraged, at most 50% of OTE is base and 50% commission
– accelerated commission rates through quota
– commission payment matches your biz plan (eg when customers pay you)
– quarterly over achievement bonuses
– achievable quotas
– extremely well documented
– job description should be part of the comp plan such as sales activities quotas but not paid on activities
– clause stating that mgt reserves the right to modify at anytime without cause
Actual base and OTE are extremely variable based on many variables but don’t overpay (you don’t need to).
I hope this helps. Let me know if you need any further assistance.
best,
Todd Hussey
A key with sales quotas is their implementation and here are a few guidelines that I’d sugesst you consider and possibly employ:
1. Targets are established at the start of the year, not 2 or 3 or 4 months into the year.
2. Targets can be explained to a rep. This means they are derived from the corporate budget and are not arbitrarily assigned.
3. There’s a compensation plan to go with the targets and the comp plan should clearly establish what is deemed minimum achievement (read: expectations) but also how a rep can make money with over achievement. See note below on calculator.
4. Put it all in writing.
These points may seem obvious but I have seen companies that do none of these and have chaos, turnover, moral issues and poor revenues to show for it.
Go here to see an online sales compensation calculator that incorporates these suggestions: http://www.bizcompare.com/resources/sales_compensation_plan_and_calculator/
Regards,
Geoff Vincent
CEO, Bizcompare Inc.