Brian Doyle, VP of Business Development at managed service provider Fuss and O’Neill Technologies and a member of our MSP Coach site, wrote to me the other day to ask my advice on compensating a salesperson when they’ve signed a multi-year contract.
I asked him if I could post our conversation here because I thought many of our readers would find it useful.
Here it is:
From: Brian Doyle [mailto:bdoyle@fandotech.com]
Sent: Monday, December 01, 2008 10:11 PM
To: Mike Cooch
Subject: Mike, First let me say thank …
Mike,
First let me say thank you for sharing the great content on this site. I have been checking out your “Selling to Clients” section and I am impressed with variety the concepts that you present. Especially since I assume this site is a side venture to the day job.
I had a question regarding sales compensation. We are just starting to build our sales team and I am a believer in the up front commission model as well. How do you suggest handling multi-year agreements? I see that you are paying 12.5% of the annual revenue, but does that change for multi-year?
In our plan we have been basing it on the assumed GP on the first year of the agreement and then we incent the rep with a better commission package if it is sold multi-year. I would love to hear your thoughts.
Thanks again!
Brian Doyle
Hi Brian,
Thanks for getting in touch – it’s always nice to hear that someone is reading our work!
I think you are doing it just right. If they sign a one year contract, commission them based on the year. If they sign a contract that is longer term, give them some sort of kicker. IMPORTANT – pay them the kicker in year 2, year 3, etc. so that the salesperson has incentive to stick around. If they are signing multi-year deals, they are keepers!
Sincerely,
Mike
The key point that I want to get across to readers here is that the additional payments made to the salesperson for signing a long term deal are all about RETENTION! By putting the additional commission funds into a bonus pool and hanging on to them until a later date, you reward the salesperson, and give them extra incentive to stick around.
And believe me, if your managed services salespeople are out signing nice multi-year deals, you wan them to stick around!
MRC
PS - you can get more detailed content on commission plan structures at our member site, MSP Coach.
