06 Jun Sales Compensation Best Practices that Lock Down Top Talent without Breaking the Bank
This post was written in collaboration with Tom Kosnik, President of Visus Group. Tom is a recognized staffing expert and business thought leader who has facilitated the increase of bottom-line profits for corporate leaders throughout the continental United States. He and his team provide consulting services, internal diagnostics, training programs, and more to help organizations achieve their next growth and productivity milestones. Need executive advice? Start your conversation with Tom here.
Money motivates people. Not a big surprise, right? Though it’s not the singular reason folks wake up in the morning, compensation enriches employee engagement, especially in the staffing industry. Firms that boast competitive base salaries and frequent commission payouts give their team a regular reminder of their value. With staffing growing into a $146.6 billion market according to SIA, only premium compensation packages will attract new and retain existing top billers.
Attract the best IT staffing experts
Through experience, I’ve found there is no perfect catch-all comp model. What works like gangbusters for some staffing organizations sputters out for others. Nonetheless, there are several sales compensation best practices that act as a sort of North Star, helping staffing firm owners maneuver toward a sustainable plan.
Pick the Right Economic Model
Financial performance is dependent on the strength of your economic model. The right type of model works out a balance between revenue, gross profit, and the operating overhead. If it’s a three-legged race, every factor is moving in unison toward a common goal. Recruiters and salespeople, with limited pressure from management, produce the most desirable outcomes when the right model is in place.
What is the prime comp rate? On average, 30% to 35% of the company’s gross margin is allocated to the total sales and recruiting expenses in an effective economic model. Each model depends on the importance of targeted profit margins compared against the direct costs and operating overhead.
Also, staffing firms should run the gross margin percentage numbers on each employee to determine the right economic model. How much of a recruiter’s gross margin production goes toward their total sales package? If the percentages overshoot or fall short of the 30% to 35% target, revision needs to be made quickly.
The long and short: Get granular with economic models to find a blend of revenue, gross profit, and overhead goals that satisfy growth. Use gross margin targets to drive sales and recruiting compensation.
Single Out the Best KPIs
Good sales compensation plans are mindful of a firm’s measures for success. Staffing KPIs determine whether individual outputs are above or below expectations and to what extent commission and bonuses should be given. Often, compensation divides into base salary and commission earned from closing deals – a limited criteria that indirectly neglects other KPIs. In fact, strong compensation plans find a way to further incentivize successful IT staffing professionals without going overboard.
On the other hand, compensation plans built around a surplus of KPIs overcomplicate the administration process and dilute engagement in those drivers. KPIs stacked to the sky may surpass the competition in design and complexity, but will fail to get attention and any effective buy-in from recruiters.
So, how many KPIs should shape sales compensation plans? I find that sweet spot to be between three and five drivers. As always, less is more. Evaluate the included performance indicators based on sales activities with the greatest ROIs, those needing greater incentives, and those requiring the most intense focus.
Again, it’s important to clarify to sales and recruiting teams that their performance in these areas have a positive impact upon their compensation. So whether it’s ambitious account acquisition and new staffing lead generation or fill rates and submittal-to-hires, there needs to be clear communication about how their actions pay off.
The long and short: Reduce principal KPIs to those eliciting the best sales and recruiting results. Expand compensation and commission to reward employees for hitting those exact benchmarks.
Pay Commission Bimonthly
Think of your favorite loyalty program. Maybe it’s Starbucks or American Express. Regardless of brand, the rewards are structured so positive reinforcement is prompt. Programs taking too long to pay off fail to condition customers to buy at the desired frequency. When working to motivate sales and recruiting teams, the same mentality generates more frequent success.
What’s the best payment cadence? Staffing firms see different results, but commission disbursement is a stronger trigger when payments are made on a bimonthly basis. That way, the actions that resulted in fulfillment of certain KPIs are front-of-mind and become habit.
In a perfect world, that’s a great strategy, but what about the X factor that has the potential to rock the commission cadence boat: client payment schedules. Just about every staffing firm has dealt with the true variability of outstanding invoices (probably to the point that some accounts receivable folks feel like bookies). Instead of putting commission installments on hold, an option is to draw against expected commission. Though unearned commission due to fall offs or the like needs to be repaid, recruiters will nonetheless feel motivated because they have the immediate reinforcement of getting paid sooner.
The long and short: Compensate employees promptly, even if that involves using a draw as good faith.
Adjust the Plan Annually
Even if you put the most strategic, most well-received comp plan into action, it is only temporary. Market demand, team size, gross profit margin targets, operating overhead, and a range of other factors change in the blink of an eye. Competitive compensation plans evolve alongside the ebb and flow of the staffing industry.
How often should compensation plans be updated? Every 12 to 24 months at minimum and look at the following considerations:
- Review industry trends – How is compensation changing in the market? Evaluate whether recent staffing industry trends influence compensation for your staffing firm. Use the SIA Internal Employee Compensation Estimator to measure trends across years of industry experience, staffing segments, and company size. A view of larger trends helps close in on competitive compensation.
- Evaluate growth targets – You know your target revenue. Which metrics will get help cross the finish line? A successful staffing firm is not going to have static KPIs. As objectives change and new recruiters and salespeople join the team, KPI priorities will reshuffle. Regular comp plan reassessment maintains the right benchmarks to ensure employee motivation remains strong.
The long and short: Audit your compensation plan every 12 to 24 months. Revise it to fit industry trends and internal growth benchmarks. Be sure to dig deep.
Exploring the Right Sales Compensation Best Practices for You
In the end, famed psychologist B.F. Skinner was right: “the way positive reinforcement is carried out is more important than the amount.” Staffing firms that make informed decisions about their economic plan, KPIs, payment frequency, and flexibility have a more lasting influence upon their sales and recruiting team. It all sparks ground floor changes that have the most sustainable impact on staffing firm growth.
Increase your gross margin
Kevin O’Brien is a Co-Founder and Partner at echogravity. Kevin’s credentials include being a top recruiter for a international Big 8 consulting firm, top business development rep for a global consulting and staffing firm, and consulting with over 100 companies across North America.