I am just starting my business, and because of my busy time at work, I can only manage the main aspects of the business, so I decided to hire a business development/sales executive to go and propose clients about our services.
Here is the question: Do you recommend hiring this person as a full-time employee (salary based)? Or I should be hiring based on a commission of each sale transaction/client lead? Or a combination of both.
Obviously, I don't want to endure too much costs at the beginning but i also want to start right.
Hiring is fine if you can afford the cash flow outlay now.
Remember, no one will ever care as much about your business as you do.
At this stage, a combination of base plus commission is likely to work best. You want that base to be just not quite enough for the hire to pay their monthly bills; ideally, you want them motivated to go get the sales.
If you pay them enough to be comfortable, they will stay comfortable.
So the base shows you are serious. However, it does not let them wallow in complacency...which they will be tempted to if you let them because it's not their business.
You will attract better candidates because of the base. Make the commission hefty, say 30% of the project revenue. Perhaps 50% if the numbers work.
The risk tolerance of commission-based salespeople is very close to entrepreneurs. This is important to keep in mind, because if the reward system doesn't keep them hooked, they will realize they could eliminate you as the middle man and keep all the money themselves--which accounts for high turnover in many commission salesperson-based operations.
Also note that once you set a remuneration structure, it is dangerous to change it. Even alterations that result in the salesperson making more money than they were prior will cause some experienced staff to get angry and quit.If and when you do want to look at changing commission structure, have the salesperson/people participate fully in the process with you. So do your best to get it right this first time. Next time you touch it, there will be consequences.
Develop a sales plan with your hire. The numbers need to support the revenue you and the salesperson have in mind. These numbers need to be believable and achievable, not pie in the sky. Each person has their own money tolerance, which is your belief of what is "a lot of money". Check for this: there's no point in hiring an individual who has a low money tolerance and thinks $500 is "a lot of money" if the deal sizes are $10K+ and on-target annual revenue for the salesperson is $200K.
If you want to discuss your situation further and set up a specific plan that avoids the pitfalls and gives you the best chance of success, you know where to find me.
Most of us on Clarity love that entrepreneurial spirit. "Been there — Done that" kind of thing.
However, before you hire a sales/growth person, I must ask if you have the marketing right. For me, the first year of business "the right person" (an A player) can and should do both sales and marketing. However, after the message and unique value proposition gain traction, these are two unique roles and you need two people.
Marketing is salary position, and for a startup an equity position as well. Early on the sales role is a small base plus commission (in some cases up to 50%), however, ultimately sales should not be a commission role for most companies aka the 80/20 Rule. Yes, most will disagree, but it took me a year of much searching and gnashing of teeth to see the light.
I am happy to spend 30 or so minutes helping you understand these concepts.
Generally, someone who's really good will be hesitant to go for something unproven on a commission-only basis unless they're getting something else out of it (like a large salary). If you can't pay a salary you're telling them that it's risky. That's may attract people who have nothing better to do, who won't put in much time, or who can help you without having to make much of an effort. Proceed at your own risk.
If you don't have time, can you put in some reduced effort? If you can't do 10 calls a week, 1 or 2 is still better than nothing. That will allow you to 1) figure out how it needs to be sold and 2) prove the results so you can attract good salespeople later.
Sales comp can get messy as you need to be careful it's outcome incentive is truly aligned with your Company goals and more revenue at all cost can be good for commissioned but kill a company, culture and product - and P&L.
Most common approach is OTE On Target Earnings with a 50/50 split.
So it goes roughly like this:
Your OTE is 120k
Your base is 60k (50/50)
The 60k incentive can be earn by achieving this ..... metrics and goals and could include % but better being payments Hitting Targets (at $25k deals you get X, and 50k you get X+, )
and because we are new at this we can review this quarterly to make sure we are aligned. On Target Earnings means this IS the target I want to pay you for getting us X.
You can also define this, and should, for ability to make above OTE amount.
It's simple but if you want more, just google OTE SALES or ON TARGET EARNINGS there are a lot of great articles on this.
In your case, context is everything. I've managed a wide range of business developers and compensation models and it all depends on the business, product, and stage of company maturity.
What do I mean by context? What's your business, what's your product or service, how much revenue do you make per sale, is your product/service simple or complex which also implies a simple or complex sale process...which then leads you to what kind of business developer and how to compensation your business developer.
Set up a call, share more information with me, and I'll give you my advice based on your context.
Are you sure you're *ready* to hire a salesperson? Your question implies that sales is not one of the "main aspects of the business." I disagree—when it's your business, sales is *never* a secondary activity!
Begin with the end in mind—what do you want a salesperson to accomplish? Assuming it's "sell more," that means a focus on commissions over salary.
To its extreme, you'd want them to be commission-only, since you pay nothing if they close nothing. But why would a high-quality salesperson leave their current job to work for you when your company has no track record, and you aren't willing to guarantee even a minimum base salary?
If you can't afford to pay a base salary, you're not going to attract quality candidates (or would need to offer enormous commissions that wipe out your margins). In that case, do sales yourself and outsource production instead.
I'm glad to do a call to help you find the right option for your circumstances. Good luck!