Given everything that has happened in 2020, the COVID-19 pandemic may have flipped your business upside down, but one thing is certain – you need a simple and compelling commission plan that incentivizes your employees to produce in a way that grows with the business. The considerations that need to be addressed along with trying to account for continued uncertainty with the pandemic is still top of mind. This time of year provides a great opportunity to assess and address your top sales driver – your commission plan – as you look to grow or recapture some of your lost business.
A quick reminder…your staffing firm is a sales organization. And because you are a sales organization, your sales commission structure is critical to your success. Compelling, engaging, motivating commission plans are not easy to craft. Such plans really need, first and foremost, to fit into a financial model. And the best plans utilize multiple sales levers to account for the ever-changing environment. When I speak with clients, here are my top areas to consider when creating a competitive commission structure:
Salaries: No secret here that salaries have crept up over the past few years. For years the staffing industry has enjoyed very reasonable base salary levels with aggressive commissions. It is safe to say that these days are over. New graduates coming out of college are straddled with debt. Their appetite for low base salary and high commission jobs is close to non-existent. Two quick scenarios that I would like to outline that I’ve seen staffing companies dealing with throughout the years:
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- Step-down salary management – Think about building a plan where the salary decreases as commissions increase in the first year of employment. For example, the target salary may be 40K. But to attract promising reps and recruiters the company starts an employee out at a 60K salary level. After three months, the salary decreases 2K a month for the next nine months.
- Performance management – A Manager should have a sense after 3 months if a sales rep or a recruiter is not going to work out. After 6 months, the manager has the performance data. Getting this decision down protects the financial investment. For example, the company offers an employee a 50K salary, add 20% for taxes and benefits and the real cost is 60K. An employee that does not make the cut in 6 months, is in this example, only a 30K investment.
Gross Profit Production: Clearly, for a staffing firm, gross profit production is king. This should be the central in any commission structure for a staffing firm. Several thoughts here to consider:
One, think about a threshold. Namely, the employee must generate 5K of gross profit prior to receiving commissions.
Two, have a graduated scale. For example, 2% for the first 10K of gross profit generated for the month, 4% for the next 10K of gross profit generated, 6% for the next 10K of gross profit generated, and so on. This component of a commission structure rewards and motivates getting into the upper buckets of a commission plan.
Three, the closer the reward is to the behavior the stronger the reward will be. Paying a gross profit production commission on a quarterly basis rather than a monthly basis is a mistake.
Four, never, ever, have a retroactive component. For example, once an employee hits 50K in gross profit production they receive the higher percentage commission reward on the entire 50K of gross profit.
Five, add an individual monthly component specific to the rep or recruiter. For example, a company that hires a new rep, just starting out, needing accounts, pay a 2K bonus for hitting a quarterly new account target. With this component, a staffing firm can individualize its commission structure. There are so many more ideas for this component of the commission structure.
Performance Drivers: The achilles heel of commission structures in the staffing industry is that so few firms reward performance drivers. Any staffing firm worth its salt knows the three to five activities that drive business, gross profit growth and revenue growth. These are called “leading” indicators. Gross profit, by the way, is a “lagging” indicator. The goal here is to have some component of the commission plan that rewards the few things that drive growth. For sales reps, these are client visits, attending networking events, and following up on job orders and leads from recruiters. For recruiters, it is submittals into hiring managers, candidate interviews and delivering leads to the sales team. A performance quota component of the commission plan rewards an employee for hitting certain targets on a monthly basis. For example, a staffing firm could have 2K a month activity bonus. If a rep hits 100% of their target they receive 100% of the 2K. If the rep hits 90% they receive 90% of the 2K. If the rep hits 80% they receive 80% of 2K, and so on. Anything below 70% is zero.
As in any sales plan, these ideas are just the tip of the iceberg. There are so many factors to consider in developing a strong commission plan for keeping your sales team engaged and motivated to win. Developing the right one can be a daunting task as you look at every facet of your business during your budgeting season.
We’ve been helping staffing companies solve these types of challenges for over 25 years. That’s why we’re your hub for any compensation plan discussions you think you will need during this time. Contact us and let’s connect. We’ve been working with staffing and sales leaders for decades developing the right plans to grow their firm.
At the end of the day, it’s about growth and the winning commission plans utilize a combination of best practices, multiple sales levers, and timely rewards to instill the behavior you are seeking that will lead to your firm’s success. One last thought, keep your plans as simple and scalable as possible!