Manufacturer Sales Compensation 2016 Report

Nice job Pretty much right on target

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Undisclosed #3

May be a dumb question, but when you are referring to quota, and lets say the quota is $2 million, does that mean a new guy that starts out has to meet $2 million his first year or does that mean he just needs to get $2 million worth of business eventually or in a pre-prescribed amount of time and simply manage those account from that point forward?

And lets say he does meet that, and the quota next year is $2.5 million, does that mean he has to just gain another 500k or does he actually have to gain an additional 2.5 mil?

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Undisclosed #1

First as a new person starting on day 1 of the new year and your quota is $2MM you have 1 year to sell that number. Then on day 1 of the next year you start at ZERO and not only have to do the same but whatever increase you are given...so if its an easy one like $500k then you have to sell $2.5MM that year...and so on...

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Brian Karas

IPVM

Not a dumb question at all.

Quotas are annual per-person, though would be pro-rated for a later start date if it's a new person starting in June for example.

In most cases your quota is an overall number you need to meet by the end of the year, but it is also broken into quarterly quotas where it "grows" quarter over quarter to reach the final number (eg: Q1 is 200K quota, Q2 is 450K, Q3 is 600K Q4 is 750K). Some comp plans will have penalties or bonuses for quarterly goals as well as the annual goal.

And if your quota grows from $2M this year to $2.5M next year, that means you need to do $2.5M worth of business next calendar year.

Make sense?

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Undisclosed Manufacturer #4

And, if you don't make your quota, you are "in trouble", and your quota gets increased anyway.... good luck attaining that...

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Undisclosed #3

Cool, Thanks! I assume most companies will adjust quotas based on newbies? Like would they expect less out of a newbie then they would a seasoned salesperson? Or is it hard core quota for everyone no matter who you are?

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Brian Karas

IPVM

Sometimes, yes, but not as often as you would think.

Overall, the company itself has a revenue number they want to hit, and "X" number of sales people. Someone has to bring that money in, so you can't give a newbie too much of a break because it costs the overall company.

If someone is new to the company, but "seasoned" in general, then there will tend to be an assumption that person comes in with a list of contacts (previous customers), and can potentially get into opportunities that the company wouldn't have known about otherwise. In that case, it balances out, the person is new to the company, but has a few good contacts so they are able to close a few simple deals by essentially calling in favors from friends at end-user sites.

I've seen this done many times, where a big customer buys $20,000 worth of cameras they have little need for just to do a favor to their sales friend (usually this happens when the customer already intends to do a lot of business with the sales persons new company). The company only got that sale because they hired this specific sales person, who had the contact (and relationship).

If someone is new to the job and the industry overall, then yes, they will usually have a reduced quota. Or, that person may be paired up with a salesperson in a very active region, so they can learn the ropes and close some of the smaller/easier deals for the regional person. Then at some point they would be given their own region, which could be the region they were helping in gets carved up, or they get a different region.

Semi-related, new sales people (new to the company) are sometimes given a draw, which can be a recoverable draw or a non-recoverable draw.

A draw is like an interest-free loan the company gives you against your commission at your target. If I want to attract a sales person to my startup who is doing a lot of business for their current company, they are not going to want to come over and build something up for several months and get zero commission. I can offer them a monthly "draw", which is saying "I trust you're going to get business in the near future, so here is a commission loan against that future business".

If the draw is recoverable it means that the sales person has to repay that loan, which is typically done by earning future commissions where some part of the monthly or quarterly commissions are used to pay back the draw, which was the paid-in-advance commissions. If the person leaves the company (or is fired) before commission draws are repaid they are technically required to pay the debt off, though this is rarely enforced (sometimes accumulated vacation or last paycheck may be put towards the draw amount, but the person still ends up leaving with a debt balance).

If the draw is non-recoverable, then it basically means the sales person doesn't have to repay the loan, which becomes more like a "bonus". These are less common. In this case the sales person may be given an MBO (Management By Objective) criteria for the first few months instead of a commission, because the company knows sales will be unlikely at first. In this case instead of having a quota of sales dollars, you have a "quota" of objectives like "Get on-site product demos deployed at 5 or more utility companies". This shows that the sales person has the ability to make progress, get into accounts, etc., but just in case they turn out to be a total dud the company hasn't paid them anything beyond base pay.

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Undisclosed #5

IPVMU Certified

Are you saying that "draw against commission" plans are more common that "draw plus commission"?

Most of what I've seen in straight software sales was "draw plus" and "draw against" was viewed as somewhat barbaric. Though compared to security sales, we were spoiled, no doubt. :)

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Undisclosed #3

Interesting. Where do companies normally look to hire sales beasts that can meet their quotas?

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Brian Karas

IPVM

Usually from other companies in the industry.

I have seen some companies try to hire from the IT industry, but results were very mixed. Seems to have higher churn, based on those people having a different set of contacts and expecting a different kind of sales cycle/sales process.

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Undisclosed Manufacturer #6

Very nice and thorough article, thanks!

Is it possible to know from which countries/regions the answers came from (or at least some statistics)? I guess compensations will differ a lot based on that...

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Brian Karas

In reply to Undisclosed Manufacturer #6

IPVM

The survey responses for this one were primarily from the US, so this is weighted to the job market in the US.

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Undisclosed Manufacturer #2

Next step is looking at what manufacturers actually pay their sales people and rating them vs what you have compiled in this report

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Undisclosed #3

I found this to be very interesting. Id like to see a distributor pay report as well as an integrator pay report as well someday.

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Brian Karas

IPVM