I recently had the opportunity to evaluate around 8 vendors and shortlist 4 for an outsourced sales model that we are piloting. An interesting thing I noticed was how the vendors quoted their commission compensations. While the overall dollar compensation requested per activation was fairly range bound among the vendors, the vendors quoted variedly on how the fixed and variable parts of the commissions were to be split. While at one extreme there was a bid for 100% fixed pay, the other extreme there was a bid for 80% variable pay and all shades in between. Of course for us, a 100% variable pay would be the least risky as, if the outsourcer does not get us a sale, we won't pay any commissions at all barring some start up costs. On the other hand the 100% fixed payout would be the most risky as we would have to pay no matter what the productivity of the outsourced agent is. We decided to select vendors with each type of pay pattern to test how the pay mix pattern affects morale, sales performance and other related parameters such as funnel development, closure rate, churn, productivity, participation rate, etc .
In a couple of instances, the bidders did argue that a 60% Fixed and 40% Variable Pay is the most appropriate split for maintaining a sales rep's morale and at the same time keeping him or her wanting to attain enough to earn that significant variable pay. Any higher fixed pay mix and reps may not work enough to drive attainment that earns them the variable pay. Any less fixed and the rep may lose motivation because of chronic under compensation, goes the bidders' arguments.We will be keeping our fingers crossed to see which pay pattern works.
Another interesting aspect that vendors explained was that the minimum attainment percent (attainment percent is ratio of the widgets actually sold to widgets that were set as quota for that rep for the performance period) required to get paid any variable at all was a high 70%. For example, a rep with a $3000 fixed salary and another $2000 in commissions (60:40 ratio of fixed:variable) would get paid the $2000 only if she attained 100% of her target. Typically, any under attainment would be decelerated downward and an over attainment would be accelerated upward subject to a cap. This ratio of 60:40, the bidders argue, ensures the maximum productivity per rep (PPR) and keeps the morale high. What do you think? What ratios have you used in your comp design?
In a couple of instances, the bidders did argue that a 60% Fixed and 40% Variable Pay is the most appropriate split for maintaining a sales rep's morale and at the same time keeping him or her wanting to attain enough to earn that significant variable pay. Any higher fixed pay mix and reps may not work enough to drive attainment that earns them the variable pay. Any less fixed and the rep may lose motivation because of chronic under compensation, goes the bidders' arguments.We will be keeping our fingers crossed to see which pay pattern works.
Another interesting aspect that vendors explained was that the minimum attainment percent (attainment percent is ratio of the widgets actually sold to widgets that were set as quota for that rep for the performance period) required to get paid any variable at all was a high 70%. For example, a rep with a $3000 fixed salary and another $2000 in commissions (60:40 ratio of fixed:variable) would get paid the $2000 only if she attained 100% of her target. Typically, any under attainment would be decelerated downward and an over attainment would be accelerated upward subject to a cap. This ratio of 60:40, the bidders argue, ensures the maximum productivity per rep (PPR) and keeps the morale high. What do you think? What ratios have you used in your comp design?
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