If you’re looking to grow your MSP business, you’ll likely consider hiring sales representatives at some point. After all, a great sales team on board means you’ll have people dealing directly with potential clients, actively promoting your services, and closing deals. But there’s one big question you must ask–how much should I pay my sales reps? There’s no one size fits all, which means getting it right can be tricky. MSP industry veteran and founder of Growth Caddie Paul Cissel broke down the different factors involved in determining how much money is appropriate when hiring and paying a sales rep for any organization operating within the MSP space.
A serial entrepreneur and Certified Exit Planning Advisor (CEPA), Cissel has spent 43 years in technology, which includes stints as a sales trainer, VP of sales, and CEO for two venture capital-backed software companies. He’s also been involved in 48 acquisitions and founded three start-up companies, growing the first company to $250 million and the second to a market cap of $1.2 billion. Both companies went public. His third company was an MSP, which he grew to $17.5 million with 82 employees before selling it in 2017.
Here are highlights from a session Cissel recently gave to MSPs at a marketing conference:
Don’t Have Hybrid Farmers And Hunters.
Hunter sales reps drive revenue by generating new leads and converting them. Farmer sales reps generate revenue by nurturing and growing existing accounts. When you keep these two types of salespeople separate, you focus on their strengths, which keeps them engaged, leads to better performance, and helps retain them. “Keep hunters and farmers separated, because true hunters want nothing to do with any further relationship,” Cissel said. “At one point, I had 1,400 agents. Once the agents got up to about a $10,000 check per month, they stopped working. That’s generally what happens if you have combined hunters and farmers. If they have a base, they’ll never go out and hunt again unless you highly compensate them.”
Know Your Metrics.
Understand what you can afford to pay so that you not only cover your costs but also make a profit while paying a fair wage to the sales rep. “Know what you want for profit and compute your investment and spend against that,” Cissel said. “A dollar of sales payroll to every nine dollars of gross margin expense. Another way to look at it is if a sales rep makes $100K, they should bring in $900K.” (The average MSP has a dollar for every seven dollars of sales expense.)
Based on best in class, a three-million-dollar MSP has between $139,000 and $157,000 total to spend on a sales rep. “They can hire a rep at $50,000 and pay that rep $100,000 to $110,000 a year at quota. Pay no more than a third of the total annual earnings (TAE) of the annual margin generated from that account. If you are an average MSP and you want to add some juice to your sales, then you might be able to pay up to $157,500.”
Discount Commission For Company-Provided Leads.
Ideally, hunters should get their own leads. However, if you have a lead-generating machine and you’re giving your hunters leads, only give leads to closers and discount the commission by 25%. “You don’t want to give a lead to someone until they’ve proven they can close a deal,” Cissel said.
The Compensation Plan Needs To Be Attainable, But Aggressive.
When Cissel’s company, Phoenix Network, went public, he opened 24 sales offices with 20 sales reps per office. With a 400% per year turnover, Cissel realized it was his fault because he wasn’t as specific as he needed to be and drove people until they dropped. To avoid a similar fate, he recommends developing a sales employee compensation plan with the following rules: First, to drive top performance from the company’s perspective, you must create a plan that is specific, measurable, understandable, and simple for the salesperson to understand. It also must complement your business, be realistic in achieving key metrics, and be fair to your salespeople. “The average new sales rep in this industry sells six deals in their first year,” Cissel said. “To bring in a new sales rep and expect them to sell 20 deals is not fair to that person.”
Tie compensation to the desired behaviors you want by rewarding people who help get the business where you want it to go, but only pay once. “Do not pay anyone, including your account managers, on a recurring revenue basis,” Cissel said. “A great plan awards overachievers, and it starves underachievers. You don’t want to pay somebody and keep them on board for three to six months if they are not going to achieve. It’s not fair to them. It is not fair to you.”
Keep Hunters On A Short Leash.
Monitor your sales reps’ activity, especially if you are investing higher compensation to increase your sales. “Watch that investment like a hawk,” Cissel said. “Measure their activity until they are consistently at or above quota.” Hunters should document and prove activity, such as phone calls made, emails sent, drop-ins/business cards handed out, and proposals made.
The bottom line to how much you should pay for a sales rep? “Don’t pay them anything at all unless they close business at your price with no discounts to your target customer profile on your technology stack,” Cissel said. “Pay should be commensurate with your business model with base pay enough to cover their basic needs–to put milk and eggs in the refrigerator and pay their mortgage. Closing business should be important to them. If they have a problem, like they need new tires on their car, they’re going to have to sell to get the tires.” If you consider a draw to help a sales rep get started, only offer it for a limited time. Also make sure they are at least covering the salary, bonuses, and commissions you’re paying out.
When all is said and done, compensation must be tied to your model, and you must be able to afford it. Keep computation simple and align incentives with your company objectives so that when an employee wins, the company wins.
