Tell me more ×
Answers OnStartups is a question and answer site for entrepreneurs looking to start or run a new business. It's 100% free, no registration required.
up vote 3 down vote favorite

We are selling specialized accounting software for real estate management companies. As you would guess, nobody changes accounting software every month, so our sales cycle is 1-2 years and we are having trouble finding motivated sales people.

Everybody suggests, that sales people should have bonuses to drive them towards the deal. We have set up a bonus system, that the person who makes the sale, gets 50% of first year's revenue of that client. It looks quite generous, but as it takes 1 or 2 years to get the deal closed, most of the sales people so far have given up. They expect quick money and quick feedback, but here it doesn't work that way.

We have considered few alternatives:

  • Offer bigger bonus after sales revenue doubles.
  • Offer ownership in the company, after sales revenue doubles.
  • Don't bother setting up bonuses, just have someone working on prospects.

So far we haven't settled with any of them. Do you have any suggestions, what kind of sales bonus system might work for long sales cycle?

share|improve this question

1 Answer

up vote 3 down vote accepted

Recoverable draws are one common option.

In essence the sales person can elect to receive some of their future commission now. Let's say when the account closes they would receive a $10,000 commission. The recoverable draw plan would let them take some amount now, maybe a 1-time payment of $2,500, maybe a monthly draw of $500 for up to 6 months, etc. The "recoverable" part means that if they leave the company and have not closed the account, then the draw is recovered by the company.

When the sale ultimately closes, they are paid their commission minus any draws already taken.

In same cases unrecoverable draws are also used, where they can take say $250/mo for up to 6 months, and would not be required to repay the draw if they leave the company before closing the deal. There can be terms around this like the draw is recoverable for 6 months, but becomes non-recoverable after 1 year with certain other MBO's (eg: if the product is not selling due to lack of demand/features vs. lack of sales effort).

The thing to keep in mind is that most normal sales people have mortgages and bills also. Though they might like the idea of a pure-commission job with huge potential payouts, they need to maintain a monthly lifestyle like most people. You will tend to have a hard time attracting good talent on something that has a long sales cycle and a very low monthly payout.

share|improve this answer
Excellent answer! – Ryan Dec 6 '11 at 9:15

Your Answer

 
discard

By posting your answer, you agree to the privacy policy and terms of service.

Not the answer you're looking for? Browse other questions tagged or ask your own question.