Our start-up company, which provides corporate communications services, wantsto hire a person for a commission-only business development position. Whatguidelines would you suggest to help us calculate a fair commission rate?
-- Lacking sufficient historical data, executive,publishing/communication/advertising, Cresskill, New Jersey.
A Dear Lacking:
Be prepared to consider the following issues:
What influence does the business development person have on sales? Doesthe incumbent open doors, close sales, or generate leads?
Does the business development person (if selling) have control oversetting prices and ultimately profitability or does this come from elsewhere?
Is the business one that requires selling, or will the businessdevelopment person merely be involved in order taking?
What is the length of the selling cycle?
Are sales recurring, or one time only?
These fundamental issues affect the design of commission plans regardless ofwhether it is in early stages of development or after there is cash flow. Asliding scale generally works better when successive sales are easier or moredifficult (remember, the scale may slide in either direction depending on thebusiness needs).
Conceptually, the commission program is about sharing a portion of theprofits from a sale with the individual who generated it. The degree of sharingis typically driven by the unique expertise required to produce results withinthe confines of what a business developer can control. For instance, the greaterthe value success is to the company in this area, the larger the commission thatwill need to be paid. It's also important to remember that should any of thefactors that influence commissions change, the underlying commission schedule ormethodology may change also.
A good starting point is to determine what an appropriate pay would be foraverage performance, model it into sales and profit objectives and then leverageit for better-than average and less-than average results. If the businessdevelopment person also has control of pricing and/or profitability the scheduleshould be adjusted to reflect this.
SOURCE: Howard Goldsmith, VicePresident, The SegalCompany, New York, N.Y.,May 30, 2001.
LEARN MORE: See "HR 101: Compensation"
The information contained in this article is intended to provide usefulinformation on the topic covered, but should not be construed as legal advice ora legal opinion. Also remember that state laws may differ from the federal law.
The information contained in this article is intended to provide useful information on the topic covered, but should not be construed as legal advice or a legal opinion. Also remember that state laws may differ from the federal law.
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