Ask HN: Advice on hiring a commission-only salesperson.

[marcamillion]

For a B2B webapp, do you give them a sales commission on the lifetime value of the account (i.e. for every month from now until they quit, they get X% of the revenue from that sale) ?

Would love to hear some feedback on what you guys do.

Also, what % is fair - in terms of commission ?

[hoodoof]

Commission only is not a good way to do things. If you cannot afford to pay a retainer then the business is too early to employ a salesperson. This is a sign you should be personally doing the sales yourself.

You want the commission to trail away over time.

You also want your employment contract to be rock solid - think about the salesperson who has earned trailing commissions - how is he going to feel about those ongoing commissions when you fire him? Will he sue?

[allwein → hoodoof]

> how is he going to feel about those ongoing commissions when you fire him?

As far as I know, salespeople are entitled to ongoing trailing commissions even when fired or they quit, unless otherwise specified in the contract.

But really, if you're still receiving value from the work they put in, why shouldn't they?

[kerryfalk]

It's entirely dependent on the product, the price it will sell for, the market, the amount of work needed to complete a sale and the total potential earnings.

Any salesperson worth hiring is going to want to know these things and know that they've got a good shot at making lots of money.

Anyone who doesn't ask is either really inexperienced or is just throwing stuff at the wall until something sticks. If there's real potential to make more than $100k in a year then it's probably something an experienced salesperson will look at. Some residual revenue is always appreciated by not necessary in reality. It depends on how much work the things I listed above will be.

If you were to ask me to sell your product I'd want to know these things:

  1) Who are your customers? (I want to know if you know who they are or if it's my job to figure it out)
  2) What's the competitive advantage of your product? (Basically, what pain point did you choose to solve and why is it different from everything else)
  3) What have the objections been from the customers you've talked to? (What are the deficiencies in your product and strategy? How long is it going to take me to overcome those.)
  4) Who are your competitors? (I need to know who I'm in the race with. Lame ducks or marathon runners?)

With answers to those three questions it would be easy enough to figure out if it's worth continuing. B2B sales cycles are typically longer so an experienced rep would probably flesh it out pretty fully before committing. 6mo-1year sales cycles are not uncommon. Knowing that it could take that long to make any money they'll probably want to know that there's potential for high earnings and a very large potential market (Can easily fill a funnel of prospects worth more than $1MM).

In my experience it's best to find someone that knows your market really, really well and make it worth their while. There's no specific formula for % commissions (My splits have been all over the map), just make it reasonable for both of you.

[actionbrandon]

It might be easier to have a quota or a teir system. For example 3 sales/wk = $300, 6=$700, 12 = $1500 and so on. Most good sales people will quickly look in the middle and say, thats easy to hit--and then look at the top bumps and get excited. A good commission structure should allow you to hire many sales people at the same time (since you don't have to pay them if they don't do anything). However, if you don't have a good handle on what your costs are or how much profit each sale is worth you will bleed to death.

[petervandijck]

If you're talking about small amounts ($200/month, not $250,000), then you really mean affiliate sales. Look at Dreamhost for a good example.

[calebhicks]

I know an enterprise b2b webapp that pays 12% of the first year and 3% each year following as the businesses renew.

[marcamillion → calebhicks]

But is the billing cycle yearly for the clients of the webapp ?

My billing cycle is 30 days.

[eof]

The deal is much better/easier for you if you can do it all up front; maybe 100% of the first month?

edit: oh, until they quit. I think if your sales are currently low and this person can deliver, something like 25% would be appropriate.

[marcamillion → eof]

Is that 25% of total revenue for the lifetime of the account ?

So if they register for a $100 plan, every single month I cut a check for $25 to that salesperson, until that customer leaves ?

Is that how it usually works ?

[entangld → marcamillion]

Commission = one month's bill is pretty common.

[eof → marcamillion]

I can't speak to how it usually works. I am just thinking about both of your positions and 25% of each and every month seems like a good deal on both sides.

Of course this assumes you assume insignificant other costs for setting up a new customer.