Why Companies Pay Less Commission As You Sell More (and, how to change that)

2020-03-26 11:01:59 - United States, Florida, Delray Beach - (PR Distribution™)

Whether it's a mega-company or startup, products and services that need to be sold have different commission rates, bonuses and spiffs, which can change monthly, quarterly or annually - and vary, depending on the length of the sales cycle, the size of the deal, and the difficulties in entering a market.

But, one thing is for sure, when launching “new” products and services, sales compensation plans pay out at the highest rates - and provide you with the ability to achieve unlimited (uncapped) earnings - at least for a while.

That’s because a company is not a company without revenue - and your special talent to cold-call, combat and convert prospect objections into customer revenue provides your leadership with their next paycheck.

Unfortunately, as revenue grows, companies dial back sales compensation - leaving you with limitations (a “cap”) on how much you can earn, no matter how much you sell.

So, why do companies cap compensation - demotivating the behavior of their salespeople - and in turn, increasing their liability / volatility for revenue, which rapidly and unpredictably changes, especially for the worse?

As with many things in life that get in our way, the answer is ego.

In this case, a “cap” is a company’s ego-related reaction to how much total comp you make - as someone does not want you making more money than them.  

Usually, it is HR looking out for the CEO, the CEO, or other C-levels.

This occurs because historically you and your Chief Sales Officer who “create” revenue, are rarely appreciated or even represented on corporate management teams or Boards of Directors - in most cases, reporting to someone who has never done what you do - produced revenue from thin air, like the COO, or CFO.

Consequently, once comp plans are “capped,” top performers leave and move on to the next company where the ability to make money is limitless.

In fact, a recent study for a client by Peak Performance in Delray Beach, Florida showed that caps are the #1 reason top performers leave a company within 3 ½ years.

What’s surprising is the risk that companies take on due to the Pareto Principle (also known as the 80/20 rule, the law of the vital few) - which states that for most events, roughly 80% of the effects come from 20% of the causes.  

In other words, 20% of a sales team generates 80% of the company’s revenue - so, once again, why do companies continue with the habit of capping comp?

Well, a select few companies of all sizes and in each industry do respect your selling proficiency and pay extremely well over a career. They are the stock market movers and long-standing industry leaders.

However, once capping is implemented, what’s left behind are the salespeople that eventually become complacent when they hit the cap wall - smug, self satisfied, and less apt to explore prospecting, negotiating and deal-closing innovation - at least until the company launches a new offering and expects a higher percentage of sales “without higher incentives,” or when the company brings in top performers from the outside “with special dispensation.”

Then, the “complacents” are stimulated to move on to another company - and the cycle continues.

So, do you have an alternative to ensure that your comp is never capped?

Of course, you do.  

Everything in life is a negotiation - and negotiations are about leverage - your special quality to influence others that their investment in what you are selling (you) has significantly more value to contribute to the success of their company, versus your competition.

But, when you attempt to negotiate during the interviewing process, companies almost always flinch - responding that they do not negotiate “employment contracts,” implying that you have no leverage.

Obviously, salespeople already employed and at 100% of quota have the least amount of leverage, as 100% is the minimal expected achievement for all.  

But, top performers, usually in the upper 3% of a sales organization, or new job interviewees have a lot of opportunity to establish leverage and get through corporate barriers.

When the preparation for your interview is done right, companies will accept your leverage - multiple-year terms and conditions, and memorialize them in an “offer letter.” 

THE 3 MOST VALUABLE SALES SKILLS

Leverage is when you understand how to increase your identification, evaluation, and prioritization of “risks” and in turn, “opportunities” - when interacting with a prospect on the phone, online, face-to-face, or in groups.

Leverage consists of three things - the INTANGIBLES (the impressions that you make) - the BASELINE (the evidence of a prospect’s current state that when compared to your solution clearly demonstrates your value proposition (practicality, usefulness, economic advantages, etc) - and the STORY (your detailed imagery that colors the paradise that you want the prospect to visualize).

STAY TUNED - This article is a sequential series of 4 articles, so look for more on the leverage to negotiate your comp plan - AND - more importantly, your sales contracts.  

Thanks for the read and I appreciate your valuable commentary.

If you have a specific strategy that you are in the process of developing relative to this article, please feel free to call me if you want to test the validity, likelihood of success, or simply to collaborate.

Chuck Pisciotta

PEAK PERFORMANCE

+1-800-239-0867

On Twitter at HarvestingTheTopLine.com

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