III. What Type of Reimbursement Package Can You Offer?

Before considering how you will pay your new sales rep you need to specify the terms of their hiring. Will the Rep be a full-time employee who works exclusively for your company or will they be permitted to freelance and work on their own time. Is a part-time employee or an independent contractor a consideration.

When considering a full time employee, be sure to include the cost for the benefit package at your facility. The financial department should be able to give you an estimated cost for benefits. There is a great deal of variability in the cost of benefits from organization to organization. The cost of benefits may range from a minimum of 0.5 percent to greater than 50 percent of an employee’s monthly salary.

If you decide that a part time sales rep can meet your needs, be sure to estimate their hours of employment and consider the package your facility provides to part time employees. Another option would be paying a higher commission rate and not paying a base salary.

Often an independent contractor may seem like the least expensive route in hiring a sales rep. Numerous factors must be considered before settling on the hiring of an independent contractor. An independent contractor is an individual not employed by a company but who works for themselves. This individual is responsible for their own taxes and all other specifics of employment. An independent contractor can not work exclusively for one company, your company (refer to Internal Revenue Code: Revenue Rolling 87-41). Specifically, he or she can not make the majority of their money from one organization. Independent contractors may work for several companies simultaneously; closing on a big deal with another company may result in no work or a decline in the work for you. Another factor to consider is the lack of commitment to you, your product, and your organization.

The compensation package you will pay your new sales rep consists of the salary, commission, and employee benefits as described above.

Compensation Package = Base Salary + Commission + Benefits

Fortunately, when you're hiring sales reps, their pay can be equated to the quality or effectiveness of their work. The more sales by the rep, the better the business for the company, and ultimately, the greater the financial rewards for the rep. Commissions vary from one company or industry to another. For example, in some companies the rep may receives one percent of the sales, while in other areas the rep can receive greater than 30 percent of the sales.

When trying to establish the commission rate for your company, look at the compensation packages for other sales reps you employ. Do the packages motivate the employee to increase their sales? How does their compensation affect your bottom line? If you reimbursed at a higher rate, would there be an increase in sales? Likewise, if you decreased the commission, would productivity fall? Other questions to ask include: How difficult will it be to find an effective and efficient sales rep for your product? How much time will be allotted or how much will it cost you to train them? What are the education and experience requirements and what is industry paying for their reps in similar companies?

Some companies pay commissions when the sale is written, while other companies pay when the money is collected from the client. The safest method is the latter; this prevents paying commissions before the sale is finalized.

When determining the commission rate, it is critical to realize the inverse relationship between commission and salary. The higher the commission the lower the base salary and vice versa. To maintain a highly motivated sales rep, the commission must be high enough while simultaneously not paying too high of a base salary. By offering a higher commission and an average base salary, the sales rep has the potential to capitalize on take home pay.

Three common reimbursement packages are:

(A) Reimbursement Package A: 100% Commission and No Base Salary This individual is not paid a base salary and the rep’s pay is based entirely on their commission. If Sales Rep A receives 30 percent of the sales and there is $10,000 in sales, Rep A would be reimbursed $3,000. This reimbursement structure requires the service (or product) to be sold continuously.

(B) Reimbursement Package B: Guaranteed Draw against Commission With Package B, Rep B receives a regular salary whether they have sales or not. Rep B can capitalize on this and make additional money by exceeding his or her guaranteed draw in sales. For example, B’s reimbursement package pays a Guaranteed Draw of $1,000/month and a 10 percent commission structure. The draw rate in this example is $10,000/month. In January, B has only $10,000 in sales; B would receive the $1,000 Guaranteed Draw. In February, B has $20,000 in sales. Rep B would be paid the $1,000 Guaranteed Draw and an additional $1,000 in commission.

Package B, Guaranteed Draw against Commission, is the most common type of reimbursement package. The sales rep is guaranteed a salary despite sales yet remains motivated by having the potential to increase their reimbursement by making more sales.

(C) Reimbursement Package C: Draw against Commission In Package C, Sales Rep C is paid on a regular basis but C will not collect any commission until prior draws or salary are covered by commission. For example, C’s reimbursement packages pays a Draw of $1,000/month and a 10 percent commission structure. In January, there are no sales and C is paid $1,000. In February, C has $20,000 in sales. C would be paid a Draw rate of $1,000 and not receive a commission check.

With Package C, the employer must state in the terms of reimbursement that if rep C resigns without covering his draw in sales, he would be liable for the expense.

Packages A, B, and C are explained in the Table below:

TABLE 1: Reimbursement Methods  

The above three methods for reimbursement are just a few of the common reimbursement strategies. Numerous other formulas fit. For example, a salesperson may be paid five percent commission on his first $20,000 in sales, and 10 percent commission until the rep reaches $50,000 in sales. At $50,000 the salesperson’s commission may increase to 20 percent. Using variable formulas based on sales is referred to as an escalating compensation package. It is recommended that the employer work closely with the accountant to develop a reasonable and motivating reimbursement package.

From the above consider what type of package works best for your company. Keep in mind other reimbursement packages you have without your other reps. Which have worked? Which have not? If your reps have different types of packages will animosity result? What is the industry standard for similar work by reps?

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IV. Writing an Advertisement

Before you advertise for your sales position, you must first define the reimbursement package you can offer. Writing the advertisement prior to this is premature.

If you choose to use print or online advertising to recruit, writing an ad that will attract the ideal candidate is key. It’s time to make your company stand out from all others in the field. Consider incorporating descriptive words that reveal your company’s culture like "fast-paced" and "dynamic." Look at the following two advertisements. Which company talks to you? Which one are you interested in interviewing with? Which ad would you like to represent you and your company?
 

You and numerous other firms are trying to recruit the best sales rep available. What sets you apart? Identify what you like about the company you work for and capitalize on information like that in your advertisement. Choose descriptive words in your advertisement that describe the important characteristics of your company.

Do any of the following words describe your company? Are there other terms more effective in attracting the best applicants?

• Experienced
• Well established
• Dynamic
• Innovative
• Fast Paced
• Respected
• Growing
• Flex hours
• Casual dress code
• Opportunity for advancement
• Competitive pay
• Easy access location

As you are writing the advertisement, consider highlighting the following details in the body:

• Position Title
• Action Statement – Dynamic, Rapidly Growing, 100K Potential
• Reimbursement Package: Salary, Commission, Benefits
• Type of Company
• Contact Person/Department
• EOE statement

V. Pre-Interviews: How to Determine Who to Interview

The good news is your ad worked. You have received numerous resumes to review. Before scheduling an interview, critically analyze the resumes and cover letters to determine if the candidate meets your needs. Does the style and quality of the cover letter and resume represent the style and quality you want in an individual who may represent your company?

Analyzing Cover Letters:

All types of cover letters will come across your desk. Be discriminative in evaluating them; the cover letter can be synonymous with the salutation and introduction of a sales presentation. When critically evaluating the cover letter, use the following checklist to see if the applicant should progress through the interview process or be rejected.

Various types of resumes exist from chronological to functional. Whatever format the applicant chooses to use, the resume should include the following:

1. Summary of skills
2. Accomplishments
3. Education
4. Work experience
5. Communicates interest in your specific job
6. Serves as an advertisement to a potential employer

Telephone Screening Interview

Once you have determined which candidates are qualified by their resume, try and contact them on the phone and have a brief conversation about what they are looking for in the position. This will identify any red flags before scheduling a face-to-face meeting. Pre-screening can save you valuable time, enabling you to weed out those individuals who lack strong verbal and communication skills. During the telephone interview ask questions like:

• What prompted you to answer the ad?
• What kind of working environment are you looking for?
• Why are you looking for a new position?

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VI. Interviewing

During the interview, keep in mind the old saying, "The best predictor of future behavior is past behavior." Although this statement is invaluable to the employee selection process, most business owners base their interview questions on future scenarios or hypothetical questions. Try asking behavior-based questions to help you identify how an applicant will perform when faced with a situation in your company. Behavior questions have three components: situation, behavior, and impact.

Situation – Ask applicants to describe specific situations that they have encountered that are similar to those found in your organization. Securing a new client, luring a client away from the competition, or dealing with an unhappy customer are examples of situational questions.

Behavior – Ask applicants to tell you in detail what they did in that situation. Probe for specific examples.

Impact – Ask them how it ultimately turned out. What was the result of their decisions, actions or strategies.

As you are speaking with the applicant, look for verbal and non-verbal signs that will help you identify the candidate's ability to communicate.

Look for candidates that: 

It is important to structure your questions to be open-ended, in which the candidate is required to give expanded answers rather than provide a simple yes or no answer. Remember you want to attain a realistic picture of the candidate’s ability to communicate. Some questions the candidate should excel in answering are:

• What skills would you bring to our company that other candidates may not have?
• Why do you want to work for our company?
• Why are you interested in leaving your present job?
• Describe your ability in meeting your sales quota in your current job.
• Describe your experiences in developing new customers.
• What are you looking for in a new position?
• Describe a problem you encountered in your current job. How did you resolve it?
• How would your customers describe you? Your colleagues?
• For this position, what will you need additional training in?
• How do you proceed when a customer is not interested in your product?
• Where do you hope to be five years from now?

At all times avoid discussing anything that could be considered prejudicial, such as race, sex, family status, sexual orientation or physical disability. Once you have found the perfect candidate, you are ready to talk about compensation.

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VII. Checking References

Despite increased work loads, at all costs one should never neglect the importance of a reference check. Reference checks may unveil potential problems in applicants. Many companies may avoid providing you with detailed information regarding the applicant. It is recommended that the first questions of the reference check should verify factual employment information. From there, proceed to more detailed information regarding the applicant’s communication skills, satisfaction of buyers, supervisor’s satisfaction with performance, ability to meet quotas, and most importantly the company’s willingness to rehire.

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VIII. Making A Job Offer

After you make a verbal job offer and the applicant accepts the offer, write a formal letter offering the position. Be sure to include a copy of the job description, what your expectations are of the candidate and the compensation package. If you are including clauses or documents like a non-compete, it should be approved by legal counsel before sending.

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IX. Tying up Loose Ends

One last reminder before you begin the orientation process, do not forget those individuals who have applied and are waiting in limbo to see if they received the job. An informational letter which notifies the applicant that another applicant was hired may hurt the applicant initially, but the applicants not hired would be more thankful than waiting around not knowing their status. If it was a strong applicant, state that in the rejection letter but inform the applicant that you will keep their resume or application on file should another position develop.

A sample rejection letter is as follows:

Dear ____:

This letter is to notify you that we have selected another candidate for the Sales Rep position. We received numerous applications and found yours to be highly competitive. We will maintain your application on file if another opening develops.

Sincerely,

Maintaining records of qualified applicants may prevent you from having to repeat this entire process and speed up the hiring process the next time a position develops.

One final note, be sure to provide your newly hired Sales Rep with a comprehensive and effective orientation. The orientation is critical in ensuring quality and quantity of sales.

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X. Sales Rep Applicant Evaluation Form

To assist you in your decision-making, consider using the following. Answer questions yes/no as indicated or use the Likert scale as described below.
 

Please be aware that use of this form has not been validated and should be customized to meet your company’s needs.  

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XI. Resources

Books  

Bob Adams, "Adams Streetwise Hiring Top Performers," Adams Media, 1997

Jerome Coletti, Mary Fiss, Wally Wood, "Compensating New Sales Roles," AMACOM, 1995

W. Frank, "200 Letters for Job Hunters," Ten Speed Press, 1990

Robert Half, "On Hiring," Crown Publishers, Inc., 1985

Pierre Mornell, "45 Effective Ways for Hiring Smart," Ten Speed Press, 1998.

Joe Petrone, "Building the High Performance Sales Force," Productivity Management Press, 1994

Del J. Still, "High Impact Hiring," Management Development Systems, 1997

Jack D. Wilner "7 Secrets of Successful Sales Management," St. Lucie Press, 1998
 
 

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