B2B Startups: Paying Your Early Salespeople

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I admittedly am not a finance or accounting expert. In fact, my mother has helped me organize myself in this arena for most of my life. However, there is one thing that I can say with absolute confidence, salespeople perform orders of magnitude better when paid fairly. I will also admit that good salespeople are high maintenance, over-confident competitors who expect to be treated well, appreciated, and compensated well.

In fact, the following points are some of the easiest ways to lose your sales people and/or destroy your sales organization:

  • Lack of financial commitments from your customers: You would be surprised at how many startups completely forget this. Not only does a lack of contractual commitments make for a risky [and even more stressful] b2b business, it makes it impossible to set up commission and payment schedules for your salespeople. Rule of thumb is, if there is a salesperson involved is closing a deal, you must integrate a way for the customer to commit to paying your company for a pre-determined period of time. If it’s a self-serve model, around which customers pay with credit card, you can get away with allowing them to cancel or go month-by-month.
  • Not pay your salespeople: This is a simple concept; you don’t pay your sales people you will loose them quickly. Unless her or she is a co-founder, before you hire salespeople make sure you have the funds and set them aside in the budget.
  • Not pay your salespeople on time: A lot of time this is not because you are trying to be malicious. Reasons why salespeople receive late commission payments include but are not limited to things like: A) you have many other high priority responsibilities and forgot, B) you underestimated your expenses that period and were low of funds. Whatever the reason is, know that if you start paying your sales people late, you will begin to develop unhappy salespeople with bad attitudes, who will eventually get tired and quit. Top sales organizations take good care of their salespeople; pay them on time and go above and beyond.
  • Change the commission structure without or with very little notice, once you had already mutually agreed upon a rate.  I haven’t heard this one too much, but just spoke with a good friend and senior sales executive recently about his experience and had to mention it. He joined an exciting NYC based startup. Dedicated several months working very hard and closing deals with great organizations. Then out of nowhere, his CEO decided to decrease his commission rate after he crushed his goals. His CEO never explained why he changed his mind before payout, but anyone with half a brain can come up with logical assumptions. Needless to say, my friend was gone shortly after and took his talent elsewhere. Point here is to not over-commit. You are basically married to whatever you agreed upon at first. ANY decrease in the commission rate is a negative. You might be able to get away with it IF you increase the salesperson’s base pay to balance it out; however that doesn’t make much sense. It’s a complete no-no to commit to commission rate with a salesperson and not follow through and/or change it in anyway other than an increase. Think about it, they are salespeople, their job is to convince prospects to agree to pay an mutually agreed upon amount; and in a salesperson’s world, there are few things more painful than a client not paying or deviating from the agreement.
  • Change the commission payment structure without or with very little notice, once you had already mutually agreed upon a rate. This is something that I find with first time entrepreneurs or management that is not as familiar with this sales side of the house. Make sure that you have a solid business model in place that takes paying your salespeople into account and understands how commission payments align with how their clients pay towards their contacts/agreements [commitments}. Unless you are well funded and have budgeted accordingly, it is dangerous when early in your company’s life, to pay your salespeople in full before you have collected payments from clients. Often times I have seen companies pay their salespeople based on payments collected. More mature companies can make the decision to pay salespeople in full upon contracts/agreements closing. I recommend making this decision much later in your company’s life, when you have validated items such as business models, have great market adoption, and product market fit.

Don’t learn these lessons the hard way. Be known as an organization that treats their salespeople like gods, pays them well and on time, and recognizes the heck out of them. If you can do these well, you are well on your way to building a top sales organization.