21 Aug Why 50:50 base to commission ratios are so last decade
A 50:50 split between base and commission used to be the benchmark for a sales rep’s comp plan. However, the world has moved on. Alex van Klaveren from Kandidate explains more.
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Alex van Klaveren
Alex van Klaveren is the Co-founder and CEO of Kandidate, long-time Sales Confidence sponsors. Kandidate is a recruitment platform that helps its clients hire faster, matching them with candidates that exactly meet their requirements.
Alex has been starting companies and running sales teams all over the world for many years.
He has seen first-hand how things have changed over the years, not least around how money motivates salespeople.
‘In 2009 I was running a sales team of 32. We were in New York and I pretty much exclusively hired people from New Jersey. They were tough. You’ve seen Jersey Shore!’
‘They loved commission. At the end of the month, I would take out a stack of hundred dollar bills. I would put it on the bell and that bell would ring and they would hit their targets. I thought, ‘This is perfect. I’ve found the perfect way to motivate them.’’
‘Ten years on, the world has changed and sales talent has improved. We have to challenge notions about how we compensate sales talent.’
Why 50:50 no longer works
Traditionally, a salesperson will earn a fixed base salary, then have the opportunity to double it if they hit their quota. Their payslip will show 50% base and 50% commission. However, Alex identifies two reasons why this does not work anymore.
Firstly, high percentages of commission lead to short-term behaviour on the part of the salespeople.
‘What happens is your sales team start to sell what’s good for them and not what’s good for the customer.’
While this leads to high revenue, it also leads to unhappy customers, which can have a detrimental effect on your company’s reputation.
Secondly, according to figures on the Kandidate platform, only 50% of salespeople are hitting their quota. A traditional 50:50 comp plan does not ensure revenue success anymore.
Comp for today’s world
Money is still essential. We all have to eat. However, today’s salespeople rank other factors highly too.
· Predictable progression with one company
· Exceptional leadership
· Development and training
· Company culture
· Office location
How does comp fit in with this?
Alex’s view, backed up by his research with Kandidate, is that adjusting the ratio slightly in favour of base salary can make a significant difference.
‘In terms of an extra 2 or 5K, I think as founders, companies, heads of sales, you have an opportunity here.’
Firstly it opens up new doors for salespeople, literally.
‘When you’re buying that house, they don’t look at your commission. All they look at is your base salary.’
Plus, it boosts retention. Salespeople will stop having to move on to move up and earn more.
‘Employees want a predictable career progression, so why don’t you tell them six months out what they could earn on their base? We’re scared to do it because we’re making promises, but it’s what they want to know.’
What do you think?
It was great to hear Alex’s bold thoughts on how comp can change the emphasis when motivating salespeople. Now, I want to hear your ideas.
What changes in the way salespeople are compensated do you think would lead to better outcomes?
Let the Sales Confidence community know in the comments below.