It’s time to talk about pay mix, one of the most challenging parts of sales compensation to get right. Before we dive in, if you haven’t read the previous posts on best practices in sales compensation, be sure to check them out:
Your Financial Due Diligence in Sales Compensation
Culture Considerations in Your Sales Organization
Job Content is Foundational in Sales Compensation
Now, once you’ve defined your role, done your market research, and determined what you can afford to pay your new salesperson, it’s time to start thinking through the pay and pay mix.
Pay mix refers to how you break down the total of what you can afford to pay. It’s made up of base salary, a fixed cost for your organization, and variable pay, a cost that changes based on the performance of the salesperson.
How you divide that mix is based on factors like how much you can afford, how the market compensates similar roles, the specifics of the sales function for the role you’re compensating, and your organization’s place in its maturity lifecycle.
Presumably, by this point, you’ve already done your research on what your company can afford to pay. You’ve also already researched the market and the “going rate” for the role you’re compensating. The information you gathered at those stages has probably painted a picture for you.
That picture may be that you can afford to pay in the mid-to-high range compared to the market. It may be that you can barely afford the low end of the spectrum. Your situation compared to the market with reference to affordability will play a part in determining how much base pay you can afford to pay and for how long without any sales productivity. It will also determine whether you need to rely on variable pay to cover a large chunk of the total target cash compensation for the role or if it can be used predominately as an incentive for higher levels of performance.
Another important factor in how you divide up the pay mix is the specifics of the role you’re compensating for. How much risk is the salesperson taking? How much responsibility is on their shoulders? How specialized do you require their knowledge to be? How much control do they have over the sale? Do they own the entire sales or business development process?
For inside sales, field sales, specialist sales, and sales management, all these factors need to be considered when establishing a pay mix.
The maturing of an organization plays a strong role in how the pay mix is divided up. For example, a younger organization may need to rely more heavily on its salespeople to educate and inform customers about their offer. They carry greater risk and potential reward (upside), especially in an organization that doesn’t have established cash flow for higher base pay.
On the other hand, a well-established organization with strong brand recognition can afford to offer a higher base salary because their salespeople don’t carry the same type of risk in selling a developing or unknown product to the market.
Consider what’s best for your organization at this moment in time. Consider what you can afford and how that affects the kind of person you can attract. Intentionally establish pay levels at a sustainable level given your current situation in the business cycle, the role, and the strategy at this time. Most of all, get comfortable changing as your business evolves because it will, and the way you compensate your sales teams should accordingly.
I go into this topic in much more depth in my book Starting Simple: Sales Compensation if you want more information. As always, if you have any questions or want to talk about your sales comp program, don’t hesitate to reach out.