Creating a sales compensation plan to incentivize traditional security sales professionals accustomed to selling “large systems” to convert to a Recurring Monthly Revenue (RMR) model can feel like playing a game of Whack-a-Mole. Once you solve one problem, another one pops up.
Most business owners and leaders are interested in increasing their RMR, but they do not want to lose what has made them special – the ability to sell and install large systems. Although they want their salespeople to start focusing on the services that create RMR, they know they cannot lose sight of the large projects.
And therein lies the challenge – how to properly compensate salespeople for selling services without sacrificing project business.
Since we started Vector Firm in 2010, we have faced this challenge with dozens of our clients. I admit that I became the unofficial world champion of Whack-a-Mole during the first few projects; however, we have come to a pretty stable conclusion on general concepts and best practices to developing a sales compensation plan that aggressively rewards RMR sales results, while not losing focus of system sales.
Over the years, I have formulated four best practices to developing and deploying sales compensation plans for RMR sales. These best practices are built specifically for a security integration company that typically sells and installs systems to commercial and government facilities.
When put into action, these best practices will shift a sales team’s behavior into growing their services business without ignoring their system sales. Whether the RMR is driven by traditional service agreements, hosted services, managed services, monitoring services or some other cool new things that are out there, these best practices will work.
1. Pay as much in advance as possible.
Almost five years ago, I was helping a systems integrator build their sales process. Part of my engagement was to tweak their compensation plan to encourage RMR sales. Their plan was based on a “pay when paid” schedule, which I liked because of the residual payments – a successful salesperson could build up a nice annuity.
Then I interviewed their salespeople – they hated it. They were far from motivated to propose services today for payment over the next several years. One of their salespeople was very transparent with me: “I get it, Chris, build up an annuity and you increase your base salary; but I don’t even know if I’ll be working here in a year. I’m happy right now, but you never know. I’m going to sell the things that are going to pay me today.”
Over the next couple of years, I found that about 80 percent of salespeople feel this way. Some would articulate their opinion in the same bold manner referenced above, and others would speak loudly with their lack of results.
Conclusion: Pay as much commission in advance as possible. Salespeople respond much more to being paid $100 today than $200 over the next three years.
Thoughts to consider: Paying commission in advance on services that will be paid over the course of multiple years can cause a lot of stress for management; however, the impact on the sales team’s behavior is drastically greater than paying over the term of the service. Here are some ideas that will help reduce stress and deliver maximum motivation to the salespeople:
- If you cannot pay commission on the Total Contract Value in advance, then pay at least half up front, and the remaining 50 percent throughout the length of the agreement.
- Create a fair cancellation/payback policy in case a customer cancels their agreement.
- Accept the risk – salespeople will quit, their customers will cancel, and you will lose every now and then. It will be minimal. Accept it.
2. Pay extra “project commission” on sales that include a service agreement.
If you have not seen The Big Lebowski, you should (spoiler alert) – every mishap in the entire movie could have been avoided if the bad guys simply understood what was important to Jeff “The Dude” Lebowski. All he wanted was compensation for his cheap rug, which was ruined by a couple goons who mistakenly roughed up The Dude – that’s it. If the millionaire Big Lebowski would have simply given The Dude a small check for his rug, there would not have been a classic movie to watch over and over.
How many times have you seen situations get out of hand because of a misunderstanding about what was important to someone? Most security integration sales professionals get a ton of value from their system sales. They value the complexity and challenge of the job; they value the satisfaction of winning the project; they value the importance of securing the facilities; and yes, they value the commission they receive from the large system sales. System sales are important to these sales professionals.
When trying to encourage them to sell more RMR, we usually put all the emphasis on the services – including the commission. If the project is the most important and emotionally impactful to most system salespeople, why not put the emphasis on the project?
Conclusion: When a salesperson sells a service agreement with a project, add an extra point or two to the project commission.
Thoughts to consider: This concept may seem a little strange, but not if you think about it from the perspective of the system salesperson. Here are a few ideas to get the most impact from this plan:
- Require a minimum term on the service agreement for this extra bonus to be valid.
- Consider different levels of a bonus. For example, pay a 1-percent bonus for a three-year agreement and 2-percent for a five-year agreement.
- Do not use a flat fee. The extra point or two takes the size of the project into consideration, and that is what excites most system salespeople about projects.
3. Do not run short-term contests or spiffs.
In my first sales job 22 years ago, my company created a “last quarter of the fiscal year” campaign to drive service agreement sales. Not only did they multiply the regular commission rate by 250 percent, but they added a four-day cruise to the Bahamas if we sold a certain amount of these contracts. To a 24-year-old guy like me, that was motivating.
I killed it. I did not win the cruise, but I came close and ended up in the top 10 percent of all salespeople for the calendar year – making me one of a very few rookies to win the big trip to the annual sales meeting that year.
Guess what? I did not sell many service agreements the following year. Why would I? I just got done making 2.5 times the normal commission. It felt so flat after the promotion. Why would I want to create possible conflict and risk losing a system sale for such a flat commission?
Conclusion: Short-term contests are good for one thing – results in the short term; however, they usually have a negative impact on long-term success.
Thoughts to consider: It is a shame these contests do not work – they are usually fun, and drive the behavior desired in a brief amount of time – but the hangover is brutal. Here are some ideas that will produce similar benefits without risking the slowdown following the spiffs:
- Create monthly or quarterly bonuses for RMR performance. This type of plan will stimulate and renew excitement every term.
- Every now and then, conduct an extremely short-term contest. For example: any RMR agreements that are quoted and delivered this week and closed within 60 days will receive double commission. This term is so short that it will not affect long-term behavior, but it will give the organization a shot in the arm that it might need.
4. Create multipliers against all commission, but based only on RMR sales performance.
One of my friends recently sold his house. During the process, he and his wife sunk about $10,000 into their three bedroom closets. I thought their investment was strange, so I got nosy.
My friend’s response stuck with me: These tiny areas of the house could greatly impact the selling price. They ended up listing the house well above their original calculation, and received almost full price. In fact, they sold the house for almost $40,000 more than they had planned before the closet renovation. My friend is very analytical, so I know his thinking was objective and accurate – it was not luck.
Think about this scenario. My friend focused on an area of the house that he probably never thought about, and he invested a lot of money in it. Why? Because it impacted the price of the entire house.
Conclusion: Just like my friend paying special attention to a very small area of his house, salespeople will focus on selling RMR services if their success impacts their entire commission structure. When a salesperson reaches different milestones in their RMR sales throughout the year, pay multipliers against all commission. For example, when new RMR sales reach $50,000 in Total Contract Value, pay 1.5 times all commissions for the remainder of the year, or until they reach the next milestone.
Thoughts to consider: This idea is excellent and drives the behavior desired by most managers and owners; however, it may only work for those that are already having a good year by about August or September. Since our objective is to influence behavior of everyone, here are some ideas that will help make this idea a motivator for all:
- Create quarterly milestones. A year is too long for most people to absorb, so the annual milestones mean very little during the first six to eight months; however, salespeople can feel 90 days. If this accelerator program renews every quarter, each salesperson will be motivated from the beginning to drive RMR sales.
- Make the multiplier mean something. Do not create a 1.05x multiplier – it makes zero impact on motivating a salesperson. Add at least a 1.25x multiplier.
- If you do the annual plan, consider multiple milestones. For example, award a 1.25x multiplier for reaching the first milestone, and a 1.5x for the second milestone.
- Do not offer multipliers for any other type of performance – only RMR sales performance.
Creating a balanced, affordable compensation plan that influences the behavior of a sales team to sell more RMR without losing focus on system sales is difficult, but it is possible – and worth the struggle. Once the right combination of ideas is discovered for the organization, behavior will start to shift, and the results will follow. Use these ideas to get started – unless you happen to like whacking a bunch of moles.
Chris Peterson is the founder and president of Vector Firm (www.vectorfirm.com), a sales consulting and training company built specifically for the security industry. Look for his new monthly column on sales tactics and best practices coming soon to SD&I magazine (www.secdealer.com).
Other Articles in this Series
This article is the sixth in Chris Peterson’s “Selling RMR” series. Here are links to the previous articles:
- Target: RMR www.securityinfowatch.com/12075581
- How to Grow RMR Sales www.securityinfowatch.com/12128511
- Selling RMR: Train Your Salespeople www.securityinfowatch.com/12174883
- Selling RMR: Hold Your Salespeople Accountable www.securityinfowatch.com/12197329
- Selling RMR: Teach Your Customers Well www.securityinfowatch.com/12296896
