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Salary or Draw? How do you retain your sales force?

10 Aug, 2007 By: Tom Callinan imageSource

Salary or Draw? How do you retain your sales force?

In working with dealers across the country, I find one consistent reason
given for paying a sales rep a draw against commission: Keep them hungry! Just
Google the "average starting salary of a college graduate" and you will find,
surprisingly, that for the 2007 graduating class the starting salary of a
Business Administration / Management major is $43,523. The new Economics
graduate will have an average starting salary of about $51, 631 and the Finance
grad will have an average starting salary of $47,905. Too bad these kids did not
pursue an engineering degree which had average starting salaries $10,000 greater
than the business majors.

Look at the substitute positions available to sales  candidates in your
geographic area.  I used www.salary.com  to
check sales  representative (and account executives) salaries  in Minneapolis  &
Philadelphia, indicating a  range  of $48,000  to   $65,000 plus.  I then made
the same query for Pocatello, ID, and the range dropped to a $40,000 to $56,000.
Granted, this salary information takes into account sales representatives with
various levels of tenure &  technical ability, but the bottom 10 percent still
had substantial salaries.

When you give consideration to other companies competing for sales talent,
you do not have to look farther than large national copier companies to see how
your salary stacks up. I worked for one of those large companies and there is a
very high probability that you are competing against a mid $30 thousand dollar
salary offer.

I certainly understand—and even agree with—the philosophy of keeping a rep
hungry.  But often, if you are not paying a salary that is at  the low end of
the scale, statistics indicate that what you will be hiring is somebody that is
simply hungry for a sales job—any job.  On the other hand, if your new hire
somehow thinks he (she) won the lottery because they are earning $35 thousand a
year, and are happy with that, they clearly are not cutout for executive sales. 

By Example

If a young adult who graduated college last week averages a mid to high $40
thousand salary, and the population of sales representatives in your area
average in the $50 thousand range, how much quality do you need to sacrifice to
hire somebody on a draw program?  Employee quality is precisely the outcome of
this discussion on salary versus draw.  I would never suggest that you cannot
hire a sales rep on a draw against a commission program.  What I am suggesting
is that you are forgoing substantial quality in the pool of employees to find
that subset that is willing to accept a draw position.

I understand the frustration that accompanies the cash investment required to
fund 100% turnover.  Limiting the investment to find quality sales employees is
certainly a legitimate goal. But if a sales hire stays eight or nine months and
falls flat on his (her) face—even if you limited the commissions with a draw or
recoverable draw approach—you are going to invest over $20 thousand in the draw
payments, commissions and bonus, and benefits—after you offset for any gross
profit from the marginal sales generated. If you have eight sales reps turning
over annually, you are spending over $200 thousand in direct costs to find that
diamond in the rough, hopefully.

Staying with the eight rep example, if you could hire a higher quality sales
employee and cut that turnover in half, you could save over $100 thousand in
direct costs. Clearly, the savings would be significantly more once you account
for recruiting fees, management and staff time, and lost sales productivity due
to lack of territory coverage or a poor quality sales employee generating
sub-par revenue results within a territory. Paying a salary that is within the
range of the statistical information available to all of us is one way to expand
the pool of quality applicants. A competitive salary or a deeper sales candidate
pool filled with higher quality sales reps will not guarantee better hires. You
will need to have a sound selection process, but that is yet another

Whether it is draw or salary, if the rep does not make it and is terminated,
it becomes salary—he is not paying you the draw back after he leaves.  So you
shrunk your pool of candidates, increasing the probability of failure in
selection, and in the end your draw simply becomes a sunk cost in your efforts
to increase your sales force.

You probably will not be surprised at this point if I recommend that you have
a salary component to your sales rep compensation plan.  I could give you my
opinion—based on managing a sales force of 1,300 reps and almost 300 managers
working in areas as diverse as Manhattan to Tupelo, Mississippi—but it is human
nature to try to rationalize why a particular geography is unique, so I will
just suggest you use the publicly available sources of salary information in
your area.  It is also critical that you use some financial model to determine
the overall payout of your compensation plan to revenue and to gross profit.

Have a Standard

Once you start to attract the higher quality candidate, make certain the
hiring manager raises his standard in selection.  Hiring a "D" player on a
competitive salary rather than a draw does not magically turn that sales rep
into a "B" player.  It is simply a hiring mistake either way you look at it. 
You could rationalize that he was the "best of the worst" you were attracting
with the draw program, but that should have been a warning that you needed to
make a change to attract better candidates.

Selling imaging products—copiers, printers, MFPs, and the associated software
and services—is a great industry where a quality rep can make significant
money.  That said, it has become a complex sale involving finance, IT, and
purchasing and many players that coexisted at one point have all converged on
the output fleet: BTA dealers, print dealers, printer manufacturers, cartridge
remanufactures, and VARs.  Attracting, hiring, and properly developing a strong
sales force will be one of the most significant attributes of the successful
companies that will thrive in this new environment.

Tom Callinan is the managing principal of Strategy Development, a management
consulting and advanced sales training firm (www.strategydevelopment.org). 
From 1998 – 2005, Callinan was an executive with IKON Office Solutions.  Prior
to IKON, Callinan was the founder and CEO of Copifax, Inc.  Callinan graduated
with honors from The Wharton School, University of PA and can be contacted at

or 610.527.3317.

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