There are three brutal realities for every managed service provider (MSP):
There’s a tug of war between owners who want to stretch the commission payments out over the life of the contract, and sales people who want their money up front. It’s been said that owners and sales people share a common enemy: the company comp plan. It’s something everyone can hate!
Stuck in “Million-Ville”
This is why many MSPs are stuck in “Million-ville”, a company size of up to $1 Million per year. This is large enough to be a viable, profitable business, but not large enough to generate really interesting profits or create high business resale value.
MSPs are rightly hesitant to pay big salaries to new sales people who aren’t producing anything. But the promise of huge residual incomes in three to four years isn’t enough to attract talented sales people who are trying to figure out how to pay the rent next week.
Why it’s Easier for the Big Guys
Large, profitable MSPs are able to outlay the cash to attract sales talent and wait / hope for the productivity in the years ahead. They are also able to fund the marketing programs to generate leads that bring about faster sales and ramp-ups.
Here’s what they don’t do: overpay their sales reps for what they sell. They pay less in residual commissions in the later years, so they make more money over the long-term life of the customer.
How can smaller MSPs compete without breaking the bank? First, they need to get a realistic understanding of what’s important in compensation.
The Surprising Truth About Compensation
Everyone says sales people are “coin operated”, meaning they care about money above all. While it’s true that sales people tend to focus on compensation more than other types of employees, it’s a gross misperception to believe it’s the only factor they care about.
Every single behavioral survey around job satisfaction will list compensation either fourth or fifth in importance, behind:
Want proof? We see examples every day of highly paid people – athletes, movie stars, and sales people – who are lazy, pampered, and have bad attitudes. They still aren’t happy no matter how much you pay. Money by itself doesn’t buy you hard work, positive attitude, or gratitude.
$100 Million Contract buys you Albert Hayneworth,
“The laziest player I’ve ever coached,” Mike Shanahan
Perception vs Reality
What’s more important than the amount of compensation is the perception that it’s fair and goal-oriented for the salesperson. You need to sell the short and long term value. Operative word: sell. You can’t just announce the plan and duck under the table. This means you need to:
Yes, you can attract, retain, and reward top sales people without breaking the bank. For specific ways to do this, stay tuned for Part II on this topic: 10 Ways to Improve Your Comp Plans.