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case study
We gave this rapidly growing digital product and business coaching company a new compensation structure to keep their sales team motivated while also protecting their margins.
the story
Rapidly Scaling Digital Product & Business Coaching Company
Our client focuses on sales and marketing of a digital product and also offers business coaching. The company has grown dramatically over the last few years and the sales staff has grown with it. The company knows how to hustle they know how to generate leads and close sales. What they struggled with was fair compensation for their sales team that keeps them incentivized while also protecting their margins.
As the sales staff grew they needed to keep the sales staff motivated and they had to make sure that they were protecting their bottom line meaning that they were not paying more than the sales staff was generating. They needed a very fair compensation plan that not only allowed the sales staff to make a decent base, but also gave them incentives to increase the sales significantly. The end goal was for the compensation plan to make both the sales team and the corporate finance team happy.
the goal
Develop a compensation plan that incentivises reps while protecting margins.
They needed a compensation plan to make both the sales team and the corporate finance team happy.
"How do you protect your margins but make sure your sales reps are the highest paid people in your company?"
the solution
Layering commission on top of company overhead
After several trials we developed a base and bonus structure that confirmed profitability and allowed the sales team to increase earnings as their results improved.
Using historical data and a baseline for corporate overhead we developed the bare minimum that a salesperson would need to do in order to break even for our client. This also included a base salary.
Then we layered on top of that a commission structure that said if you did above your vape for your break even you would be paid a certain percentage of the gross profit of the sale.
We allowed this to extend up to a set point. For example, it permitted 20% above the break and even once they exceeded the 20% above that break-even, we then escalated it to where if they achieved even higher sales they got a higher percentage of commission.
Here's how it works:
To Pay for one’s salary (break-even) the salesperson would sell $100K a month.
Any sales $100k - $120K the salesperson would receive a 10% commission.
Anything $120K - $150K the sales person would receive a 15% commission.
$150K - $200K commission would be 20%.
>200K commission = 25%.
This plan did a number of things for them:
1. A salesperson could relax and know that the base salary is safe even if it's a poor month.
2. It incentivizes the sales team to sell more. The more they sold the more they can make via an exponential factor.
3. Corporate finance realizes that if they were just hitting their break-even number they didn't have to pay bonuses and we would easily cover overhead and hit all margin targets.
4. Everything after the 120% was effectively gravy, so splitting that up only increases their bottom line at a slower rate and made their sales team that much more engaged.
We also had the caveat that if they did not hit their sales numbers, their break-even targets for 3 consecutive months, then serious discussions would need to take place. And this further provided accountability.
Now that there is a foundation in place new products can be added. For those new revenue streams we simply mirror this same process.
the results
A much more profitable pipeline & a thriving business
The company has grown threefold over the last couple years. The sales team has increased and we've developed a waterfall approach. As the original sales team has become part of sales management bringing on new sales members under them working under the same process. But now they have a roll up where some of the commissions are split and rolled up to their managers.
Their profitability line has been steady throughout the massive growth and with massive spending as we review this with them every year to update the numbers and the goals for each team member.
We also have created score cards to show each team member where they stand and how they rank compared to the rest of the organization.
This has created healthy competition among the team with everyone still knowing that they are getting paid and comfortable that one bad month won't sink them.
Corporate finance is happy because they have real clarity and know that their margins are protected at all times.
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