One of the benefits of a career in sales is the unlimited upside earnings that come with success. You bring money into the firm and you get to keep part of the value that you helped to create. The downside for some salespeople, and it comes as a shock to many, is discovering that they have to pay for themselves.
How Your Company Looks At You
It’s likely that you are paid a base salary and that you are given benefits. These are direct costs to your business, and they view them as such. But the amount of money that is spent on your base compensation, benefits, and commissions doesn’t determine whether or not you are an expensive salesperson or an inexpensive salesperson. It is your results that determine what you really cost.
Here are two examples:
The first salesperson sells for a year, and over that time they generate $250,000 in new business. If the company has a 15% gross margin on sales, that salesperson will have generated $37,500 in gross profit. If their base salary and bonus amounts to, say, $75,000, the salesperson costs the firm $2.00 for every $1.00 in profit that they generated.
The second salesperson generates $1,250,000 in new revenue. They are paid the same $75,000, but also made $15,000 in commissions for a total of $90,000. Even though this second salesperson was paid more money, they cost only $.48 for every $1.00 of gross profit that they generated. This makes them a less expensive salesperson (This concept should be easily understood by salespeople).
This is why rewards are greater and greater for the top producers; they are less and less expensive, even when they are paid much more. And even though it isn’t pleasant, this is why salespeople who don’t, can’t, or won’t produce tend to find their way out of sales organizations.
It is important for salespeople (and everyone else, I might add) to know what they really cost their firm. It’s important to know what kind of contribution you need to make to be of benefit to the firm, and what kind of contribution you will need to make not to be a drag on the firm.
Too many people not producing and there is no firm.
To some this plain and frank talk seems harsh. It isn’t meant to be. If you reverse the order of things, your view quickly changes.
If you decided to go out on your own and open your own business, you would be responsible for paying your own way. There more you earn working for yourself, the more you have to bring in so that you can take it out of the business—and you still have pay for everything else it requires to run the business.
Were your business to grow large enough that you needed a sales force, the calculation that you would use to decide whether or not the salespeople you hired were performing well economically would look very much like the calculations above.
This is economic adulthood. It’s understanding that you have to pay your own way and make a positive financial contribution to the organization for which you work.
Can you tell the difference between an expensive salesperson and an inexpensive salesperson by their salary?
How does your company determine the value that you create for the firm?
Is sales treated differently than the rest of the organization when it comes to paying their own way?
How do you know you are paying your own way?
If you were a business owner, how would you determine the real cost of the salespeople that you employed? Is it any different than you expect to be treated?
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Filed under: Sales 3.0