by Norm Brodsky
It’s human nature. You simply can’t appreciate what you’ve got if you don’t have anything to compare it with. So what do you do? You look for greener pastures. Virtual y every person I’ve ever hired straight out of school has moved on within two years.
There’s not much point in hiring salespeople whom I know I’m going to lose right after they’ve been trained. Nor is there much point in training salespeople only to discover that they don’t like sel ing or aren’t comfortable in our environment. That’s why we insist that candidates have experience in sales and have worked in at least two other corporate cultures. In your first job, you assume every company works the same way. In your second job, you learn that different companies have different styles, different benefits, different procedures and rules. By the third job, you realize you’re choosing a company as wel as a career.
My fourth rule is probably the most controversial one. I have an absolutely firm policy that we wil never hire a hotshot. By that, I mean a superstar salesperson. A sel ing machine. If a good salesperson can make one hundred sales cal s and close ten accounts, and if a great salesperson can close twenty, then a hotshot can close thirty-five. I’m talking about people who are tops at what they do. They have the gift. They have the hunger.
They have the drive. They can sel anything to anyone. They are the best salespeople in the world. And I don’t want them in my company—because they think about only one thing: closing sales. They’l say anything, do anything, promise anything to bag a customer.
I’l give you the example of Bert, a hotshot salesman I had in the early days of my messenger business. He talked fast and thought fast. He also produced a tremendous volume of sales, which made me very happy. I didn’t have time to check up on him and didn’t know I had to. Al I cared about were the sales, and he was delivering.
Then the problems began. First, we started having trouble col ecting from his customers. Some of them said that the prices we were charging were different from what they’d been promised. Others complained that they weren’t getting the level of service we’d told them they’d receive. Then there were the low-volume customers to whom Bert had given high-volume discounts, assuring us that the additional sales would come later. When we checked, we discovered that the future sales were a figment of his imagination. In most cases, there had never been any possibility that the customer could deliver them.
Unfortunately, Bert was just the first of several hotshots I hired. They al got me into trouble. I couldn’t train them or control them. They were always forty steps ahead of me. Every system I put in place they found a way to beat. I kept thinking I could overcome the problems. I told myself that the hotshots would bring in the new accounts, and I’d patch things up afterward. It never happened. The customers felt they’d been misled and held me responsible—as wel they should have.
So I learned an important lesson: your salespeople represent you in the marketplace. I decided that I couldn’t afford to have hotshots representing me. They operate on a philosophy that’s different from mine. They believe in making sales at any cost. I don’t want sales at any cost. I want sales that provide me with enough gross profit to grow my business and that wil keep coming back, year after year. I want to build long-term relationships with customers, and I want salespeople who wil help me do it.
And that’s real y my point here. I’m not arguing that every company should have the same rules as mine. What’s important is to have rules of some sort—to think through these issues as your company grows and to develop your own practices. Because, when you hire salespeople, you’re not just choosing employees. You’re also choosing customers. Like it or not, your salespeople are going to play a major role in determining the types of customers you have and the kinds of relationships you have with them. It’s worth taking the time to make sure you get those relationships right.
Ask Norm
Dear Norm:
I know that you pay salespeople by salary, rather than commission. My question is, how do you decide on raises? I suspect you must use subjective criteria. If you based raises only on objective sales results, it seems as though you’d undermine the team concept you’re striving for.
Robert
Dear Robert:
You’re right. Part of it is subjective. I look at overal company results and at individual performance, but most important to me is the way they work as members of a team. I want to see people helping each other, not competing. I’l give you an example. One of our salespeople, Patti, had to go out of town and asked another salesperson, David, to attend a meeting with a big account she’d been trying to land for months.
When David showed up, there were six people waiting who said they were making the final decision that day. He closed the account, and I give him ful credit for that, but I also give three stars to Patti for being able to say, “Okay, I trust the people I work with to cover for me.”
—Norm
The Trouble with Sales Commissions
Getting the right salespeople is only the first step. You also need to have a compensation system that rewards them properly and yet doesn’t create problems in your company. I’ve developed my own system for paying salespeople. In the process, I’ve become convinced that the way most companies do it is a recipe for trouble. I’m referring, of course, to the practice of paying sales commissions. Unless you’re very careful about how you use them, they almost always have the effect of undermining any sense of unity and common purpose in a business. How? By putting the salespeople in a separate category, by making them stand aloof and apart. Granted, sales commissions aren’t the only culprit. It doesn’t help that most companies put the salespeople in separate offices, hold separate meetings for them off-site, and treat them far more gingerly than other employees at performance review time.
But commissions play the largest role in distancing salespeople from other employees. The result is a lot of animosity and resentment, leading to inevitable conflicts. The accounting people complain that the salespeople make special deals with customers and then don’t inform the people who do the bil ing. The operations people complain that the salespeople make unreasonable demands. As the owner, you’re constantly having to mediate between departments while simultaneously resolving disputes among the salespeople themselves over who has which territory, who handles which customers, who gets the leads coming into the office, and on and on. It’s a nightmare, and a highly unproductive nightmare at that.
Now, I realize that my position on sales commissions is controversial. I also realize that many times you don’t have a choice—at least at first.
Most salespeople have been indoctrinated in the cult of the sales commission. They believe it’s the only fair way to handle sales compensation, and they like the idea of being paid for the sales they make. For that matter, a lot of owners share that philosophy and are convinced they’l get more sales—and better salespeople—if the latter get a piece of whatever they bring in. I used to believe that myself.
But I’ve learned it’s an il usion. After many bad experiences, I decided to scrap my commission-based sales compensation system and move to paying salespeople a salary plus an annual bonus, with raises based half on their individual performance and half on the performance of the company as a whole. The result: My team of three salespeople and one support person has consistently outperformed al of our competitors, closing five or six times more sales per person than the salespeople at other companies in our industry. What’s more, our people do it together, because they real y work as members of a team. While none of them is a superstar salesperson, they each have different strengths that complement the strengths—and make up for the weaknesses—of the others.
We have one salesman, for example, who is terrific at bringing prospects in the door but has a hard time closing big accounts. It doesn’t matter because he can get al the help he needs doing the close. There are no territories and no territoriality. The salespeople readily cover for one another when necessary. They also wor
k closely with our operations people, often bringing them on sales cal s, giving customers the opportunity to get to know the people who are actual y providing the service. The salespeople themselves know al about operations. As part of their training, they’ve spent time working in the nonsales departments, where they’ve formed personal bonds with the other employees and developed a keen appreciation of their contributions to the success of the business. Building on those relationships, the salespeople are able to turn in numbers that put superstars to shame.
I admit it took years for our system to evolve, and there were certain leaps of faith I had to make along the way. I had a hard time accepting that I didn’t want hotshot salespeople because I’m a hotshot myself in some ways. I had an even harder time deciding to move al of our salespeople from commission to salary. Frankly, if I were doing sales for someone else’s company, I’d be hel -bent to get commissions, because I think I’m a great salesperson, and I’d want to get paid accordingly. I wouldn’t care about the rest of the company. I’d be furious if other employees didn’t do what I wanted them to do for “my” customers. In other words, I’d be exactly the kind of salesperson I don’t want to have working for me.
Once I’d made the switch, moreover, I got a bonus. Gone was the great fear that al owners have to one degree or another—the fear that salespeople wil leave and take your customers with them. Although it’s been many years since a salesperson left my company, it would have absolutely no impact on our sales if we were to lose one of them. On a personal level we’d be sorry to see the person go, but the thought of losing customers or sales as a result wouldn’t even cross my mind.
In fact, I’d say you’re much more likely to have salespeople leave and take customers if they’re on commission, rather than on salary and bonus.
For commissioned salespeople, the customer represents security. As long as they have that connection, they think they have a means of earning a living. Consequently, they have a strong interest in making sure the customer belongs to them, rather than to the company. So they resist letting anyone else in the company have a relationship with the customer. They’re better off if the customer sees only them.
To protect themselves, owners come up with al kinds of mechanisms aimed at preventing the salespeople from getting too cozy with customers.
One approach is to transfer every new account from a salesperson to a customer service representative, who handles the relationship from then on.
Another technique is to reduce the commission over time. Thus, when a salesperson closes an account, he or she receives, say, a 10 percent commission on the first year’s sales, 5 percent on the second year’s sales, and 2 percent thereafter. In theory, salespeople won’t spend much time with a customer if they’re getting only 2 percent from the account. Such systems may or may not weaken a salesperson’s hold on a customer, but they don’t address the underlying problem. The salespeople are stil not members of the team. Their focus isn’t on making the company successful.
It’s on looking out for number one.
I want everybody in my company to be on the same team, including my salespeople. That won’t happen unless everybody is paid the same way.
Notice that I didn’t say everybody should be paid the same amount. Because of the role they play and the difficulty of the work they do, salespeople wil always earn more than most other people. That’s natural. A surgeon earns more than a lab technician. But I want al of my employees to be part of the same compensation system. That is, I want them to receive a salary that is reviewed and adjusted annual y, based on the performance of the company and the contributions of the individual.
If you’re like most owners, you’re probably shaking your head and thinking, “Yeah, great, but I could never implement that kind of compensation system even if I wanted to.” You believe you have no choice but to pay sales commissions. It’s how the industry works, or it’s what salespeople want, or it’s the only way to motivate them. I agree that commissions are the norm in most industries, and salespeople feel comfortable with the norm. I also agree that commissions are the only way to motivate some salespeople. But they’re the hotshots and would-be entrepreneurs whom I don’t want in my company. I want salespeople who do sales for a living simply because they like the work and they’re good at it. They have no hidden agenda. They are motivated by the same things that motivate other employees. They just happen to sel .
Those salespeople don’t need to be on commission. Yes, they want to be compensated fairly—like anyone else. But they also want what most other people look for in a place to work. They want to be part of something. They want to belong somewhere. They want to spend their lives working for a business that treats them as valued members of a team.
And yet, by definition, you’re not a member of a team if you’re sel ing on commission. The way you get paid pretty much forces you to be in business for yourself. Unfortunately, most salespeople don’t recognize the problem. They’re accustomed to being on commission. They’ve bought into the conventional way of doing things. When they interview for a sales position, the first question they ask is, “What’s the commission and what’s the draw?” If you offer them a salary up front, they give you a funny look. You can’t fight that, and I don’t. I won’t risk losing good sales candidates by trying to force them into my system before they’re ready. It’s my job to sel them on the program, and that takes time.
So we start new salespeople with what they’re used to: salary and commission. After two years, we know whom we want to keep. I’l then go to the person and say, “Listen, you’ve been here two years. We want you to be here forever. We’l buy out your commission and raise your salary, so you won’t lose any income. In return, you’l get stability. Do you think you’re going to have a good year? I’m wil ing to guarantee that you’l have a good year. And if you real y do have a good year, I’l guarantee that next year wil be even better. Then again, if the economy goes bad and you have some down years, you don’t have to worry about a big drop in your income. You’l continue to earn your salary. We want to give you that security because we want you to be here for the long haul.”
I also explain our annual salary review process, which most people don’t understand. It begins with an assessment of how wel the company did in the past year and how wel we expect it to do in the coming year. We then set a range for salary increases based on the assessment.
Everybody’s raise fal s within that range, but whether people are on the high end or the low end depends on their individual performance.
So salespeople, like other employees, are rewarded both for the company’s success and for their own contributions to it. The logic is simple: We want to change their mind-set. We want them to focus on doing what’s best for the company whether that means sel ing, or working with other employees to solve a customer’s problem, or helping with col ections, or spending time on important projects that don’t necessarily result in immediate sales.
By doing al that, by becoming ful -fledged members of the team in our company, salespeople wil earn as much money over the long run as they would if they stayed on commission, and so I tel them. I also point out that they’l be able to take longer vacations in the future, because they won’t have to worry about leaving their customers unattended; someone else on the team wil be available to handle any problems. Above al , they’l have the satisfaction of being part of a thriving company and the security of knowing they won’t be left to fend for themselves when the going gets tough.
Although it’s al absolutely true, some people are more difficult to convince than others. I had one terrific salesperson, Patti Kanner Post, hold out for years. But she eventual y came around and switched from commission to salary.
After almost twenty years with a largely salaried sales force, I can assure you that the system we’ve come up with real y does work. What’s more, it’s good for everybody, though I have no doubt who gets the most out of it. I do. I get a cohesive company. I get people w
orking together and pul ing in the same direction. And while I’ve always tried not to waste time worrying about salespeople leaving and taking customers, the thought doesn’t even occur to me these days. It’s almost impossible to imagine. And that may be the greatest benefit of al : peace of mind.
Ask Norm
Dear Norm:
I’ve heard you say that— if you run your business right- departing employees shouldn’t be able to take your customers with them. So what am I doing wrong? I give our project managers and salespeople a lot of freedom to serve customers. After a year or two, the employees walk off with the account. Each time, I get the same feeling as when I receive a letter from the IRS.
Charles
Dear Charles:
Start by looking at your hiring practices. It sounds as though you could do a better job of spotting salespeople who want to be around for the long term. You also need to be proactive. You’re asking for trouble if you and your operations people don’t have regular contact with customers. That’s the only way to make sure a customer belongs to the company, not to the salesperson. I’m careful not to step on the toes of our salespeople, and they’re happy I’m so visible. My presence gives them a competitive advantage. They’d have only one reason to object: if they didn’t real y have the company’s interests at heart.
—Norm
Everybody Sells
My point is that sel ing should be a team effort, and when I talk about a team, I’m not just referring to the sales team. I’ve long believed that, in any company, everybody sel s. By that, I mean that everybody plays a role in the sales process. Whether people work in operations, customer service, or even accounting, they have an impact on customers, and that impact—good or bad—wil influence the sales force’s ability to close deals and retain accounts. For a long time, however, I assumed the effect had to be indirect. I couldn’t imagine how people outside sales could be directly responsible for landing new accounts. But then one day my employees taught me a lesson that changed the way I look at sel ing.