There are hundreds of compensation models for salespeople. Simply put, there is no one-size-fits-all sales compensation strategy for professional services. Rather than recommend a specific model, we will cover some guidelines that you can consider when constructing the right plan for your firm.

It is important to point out that many professional services firms do not have traditional “salespeople”. Some firms are too small to have salespeople, some have a CEO who does the sales, and others have a “partner model” where each partner runs a portfolio of accounts. The makeup of the sales function varies widely and so do the compensation models.

With firms adhering to the partner model, the partner is often responsible for selling new business, managing the executive relationships, and overseeing the portfolio of revenue. These partners generally come from a delivery background and have grown into a role that oversees both sales and delivery for a portion of the firm. Partners are generally going to have a multifaceted compensation plan that pays a portion of the gross profit across their portfolio.

Below are guidelines you should think through when constructing your sales team compensation model:

• A compensation model should always start as a collaborative discussion. Weeks before you create the first draft of the plan, meet with each salesperson individually and discuss the high-level goals and likely plan components. Let the sellers express any concerns with the plan or with the business in general. Also, get an understanding of how much dollar volume each sales rep expects to close in the coming year. If that number is too low or unrealistically high, challenge the rep and find out why.
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• Salespeople should have quotas. Without a quota, the reps are just “doing the best they can”. This isn’t good because your expectations won’t be clear and likely won’t be met.
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• Make sure the variable compensation (usually commission) is meaningful. Or, put another way, don’t pay a base salary that’s too high. If the reps are getting 80% of their on-target earnings (or “OTE”) in the form of a base salary, it doesn’t hurt badly enough if they miss their sales quota by a wide margin. It should. If the variable portion of their compensation is seen as just “gravy”, there won’t be enough motivation to drive the results that you need.
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• Put the compensation plan in writing. The sales leader (or the CEO) should sign the plan and the sales rep should sign the plan. This formalizes the plan and indicates that both parties feel it is fair and achievable.
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• Ensure that the OTE figure is clearly understood. At the outset of the plan year, the sales rep should clearly understand that with X performance he or she will receive Y in total compensation. The rep should be excited by it and feel that it is achievable.
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• Don’t pay excessively for mediocre performance. Reps that are underperforming after 6-9 months on the job should likely be fired (unless there are extenuating circumstances). The good ones will always shine within those first 6-9 months.
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• Include “claw backs” in the event of customer defaults or contract terminations. If a sales rep has been paid commission on a sale that never materializes into revenue, the company should be able to recover that unearned commission. Note that, in most cases, it’s best to simply withhold a portion of future commissions over a number of months in order to slowly recover the unearned amount. It isn’t fair for the rep to absorb the entire hit all at once.
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• Strongly consider paying commissions on proposed gross profit instead of topline revenue. Why? If a rep sells a $1M project but at a $50 per hour bill rate, there is likely zero profit in the deal. Companies pay their operating expenses with gross profit, not with topline revenue. By paying salespeople commissions on proposed gross profit, the sales rep is incentivized to make sure that the deal makes sound economic sense for the firm. Note that the word “proposed” is important here. The sales rep likely shouldn’t be compensated on the realized gross profit because the rep has no control over the delivery of the project. If the project team makes mistakes, that isn’t the fault of the sales rep and shouldn’t lower the sales rep’s compensation (particularly if the sales rep wasn’t involved in the estimation process).
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• If the sales rep is truly managing the customer relationship over time, then the rep should continue to earn full commission in future years. But, in many firms, it makes sense for relationship management to be handled by a delivery leader who is involved with the project work on a daily basis. In those types of firms, the sales reps are primarily focused on new client wins and delivery leaders focus on repeat business within existing accounts. In that model, the sales rep should get full commission for some period of time (possibly two years) and then should receive a much lower commission (possibly a quarter of the original percentage) for that account on a perpetual basis.
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• Include some accelerators and special incentives in the plan. Salespeople are competitive and they like to achieve goals and be rewarded. Consider cash incentives, vacations, trophies, and similar awards to drive the desired behavior and results.