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Super-early stage businesses often struggle with when and how to bring on that first salesperson. It usually goes like this:
Suzanne has started her own business because she has a product to sell or a service she knows how to offer. She gets a few customers and begins to get busy performing whatever it is the company gets paid for.
First, she hires a book-keeper, a shipping person, or a project manager – sometimes even part-time – to offload some of these things from herself so she can spend more time doing “her” work and getting more sales.
Now, a vicious cycle begins. While she’s working or managing others, she’s not selling. Work gets performed, projects completed, customers pay, and now she’s back to selling and worrying about revenue. She thinks to herself, “if I had a salesperson selling for me, my work would be steadier, my cash flow would improve, and I can grow.”
And, she’s right.
So how does it work?
Before you even THINK about hiring a salesperson, the first thing I want you to do is imagine your business with twice as many customers and twice your existing revenue. Are you ready for that volume? If not, you need to build scalability into your business, and this article is a good place to start. If you ARE ready, awesome! Let’s dig in.
First, I am assuming you don’t have a bunch of money sitting around, and you’re not funded by investors, and your cash is tight. You can’t afford a big salary, so how do you attract talent, right? It’s tough.
You’re still going to have to invest in someone, and this is painful. You’re going to make less money in the short term than you have been. #1, you’re spending on a base salary or draw (we’ll get to this in a minute) and #2, some of your own selling or working time will be reduced as you onboard this new person, train them, go on some sales calls, and coach and manage them.
Pick the right time to do this based on your business cycle – like right after you’ve just finished and invoiced a ton of work. You will have some cash, and you’re going to be back out there selling, so it’s a great time to bring on another person and teach them.
In my early stages, I looked for youth, enthusiasm, willingness to learn, work ethic, experience selling or working in a customer environment, and ambition. I offered either no salary at all, a very minimal one, or a draw against future commissions. Let’s look briefly at each.
No salary / straight commission. Typically this new salesperson has some money saved and can cover their personal overhead for a few months. They likely have come from a competitor in your industry, they have experience, and will probably bring a few clients with them. They want to join you because they like the total opportunity (upside) at your firm better than where they are. Excellent!
Minimal salary + commission. I always want my salespeople to be hungry for their own success. In some cases, I would offer a minimal salary – just enough to cover basic living expenses like rent, auto, and food – and not enough for any nice lifestyle. This gives them a little breathing room knowing their basics are covered, but it’s still uncomfortable. Excellent again!
Recoverable draw. A “draw” concept is a modification of the first one, where the rep can borrow from the company (still cash will come out of your pocket) in the beginning or after a really tough month, and then pay that back out of future commissions. This generally works fine, with one caveat. If you offer a draw, and this person doesn’t perform, they’re going to quit and not pay you back, so keep this amount minimal, and just accept that fact. And no, you’re not going to sue them.
No matter what pay scenario you use, these eight topics, at a minimum, must be addressed.
- Training and onboarding. You MUST spend the time to teach, educate, train and work with this person that you’ve chosen to invest in. Set aside the time, make a plan, and stick to it. I like to ask reps to prepare a 90-day plan for themselves, and then go over that together. It gives me a good view of their experience and how much help they’re going to need.
- Markets. Know what markets you want to go after, and how to get to them. Teach your rep as much as you can here, and it will help keep them focused. I wrote recently on this subject.
- Goals and quotas. Establish your expectations early. Look at how much business you’ve brought in yourself, and gauge it from there. What is the minimum revenue or profit they must generate? By when? What would be an amazing goal? How would you bonus that?
- Activities expectations. Think about what made you successful in getting clients. Write these activities down and quantify them. Define them as minimum expectations for your salespeople: # of calls, # of visits, # of materials distributed, # of demonstrations, and so on. Read this one on Sales Management 101.
- Full-time or part-time? I generally advise against hiring part-time salespeople unless you absolutely cannot afford a full-time person. Part-timers aren’t as hungry or ambitious as full-timers, they’re generally less reliable, and they may not be available when customers call. Stick with a full-time person if you can. Bite the bullet.
- Establish pay structure. How will you pay their commissions? On revenue? On gross profit? What about new business versus existing business? What about on recurring revenue contracts? When is it earned? When is it payable? How often will it be paid? Will you pay on deposits? I certainly recommend holding some (or all) of their commissions until the last bit of money is collected from the customer! There are many, many “gotchas” on this subject – enough for me to write another entire blog post.
- How much pay? As a place to start, I’ve seen commissions in the 4 – 12% of revenue range, based on profitability of deals, achievement of goals, etc. Or I’ve seen commissions be 20-30% of gross margin per deal. Both of these systems work well, but have some nuances that must be dealt with: profitability of deals, your willingness to disclose costs, escalators, and so on.
- Expenses. Salespeople typically will take clients to lunch or coffee, will expect some reimbursement for driving mileage or fuel, treat them to a sporting event, and so on. Think through what you’re willing to reimburse, how much, how often you want their expense reports, and maybe specifically things you will NOT reimburse. All of this avoids confusion and disappointment later.
One last thing on pay structure. Set this part up early and make it as black-and-white as you can, document it, and have them sign it. You’re messing with people’s pay here, and that’s how lawsuits and labor complaints begin. (I’ve had my share of those too.) It’s worth it to have a consultation from a human resources expert to get this done right.
This should give you a good starting point on how and when to hire your first salesperson, and what you need to think through in the earliest stages.
I’m always interested in your comments and feedback. And for 1-on-1 coaching, group coaching or more helpful articles on building and running a Performance Business, visit my site at www.businessbyday.com
Make it a great day!
–Rick
