MSP Executives Debate How To Best Pay Salespeople
Wade Tyler Millward
Executives from Pileus, Rx Technology, ABM and K7 debate ways to best compensate sales employees.
John Douglass got a lesson in sales incentives when he realized the way he compensated a certain customer support employee encouraged that worker to sell harder to customers.
Some of Douglass’ Midwestern customers didn’t take kindly to that behavior, the president and owner of Wichita, Kan.-based MSP Pileus Technologies told a room of solution providers at CRN parent The Channel Company’s XChange NexGen 2023 conference. The customers felt that the employee was “pushing them way more than they needed to be.”
“That was a sales compensation failure,” Douglass said during the conference, held this week in Houston. “We really put more quota on her than we should have. She really should have been more of a bonus-type commitment.”
MSP Sales Compensation
Douglass shared his story as part of a panel on sales compensation and best practices for MSP sales employees.
Faisal Ahmed – CEO of Durham, N.C.-based MSP Benchmark Network Solutions – attended the panel and told CRN in an interview that the speakers motivated him to revisit his employees’ key performance indicators (KPIs).
“We’ve been moving from a VAR to an MSP, and we’re having one of our best years ever,” Ahmed said. “But that has also meant revisiting our sales processes.”
Sales compensation takes on greater importance when MSPs face $25,000 in customer acquisition costs, MSPs might close one or two customers in a quarter and a sales representative can make around $100,000, said panel moderator Kyle Christensen, founder of San Diego-based and MSP-focused business consultancy K7 Leadership.
“It is not cheap to close a customer,” Christensen said.
Ultimately, MSPs can find a challenge in recruiting salespeople who do well in the more involved
solution-selling motion of managed services as opposed to a product-based one where customers either want the product or don’t, said panelist Nathan Rizzo, president of San Antonio-based IT services provider Rx Technology.
“Effort doesn’t matter in sales,” Rizzo said. “It’s results. If you make 1,000 calls and don’t get a proposal sign, you’ve failed.”
This can add to the frustration of MSPs moving past founder-led sales. For Rizzo, the transition proved expensive and difficult, he told the crowd.
Paying commission to new salespeople who need hand-holding doesn’t feel great.
“It’s very easy to take the inbound lead or the referral and then close it yourself,” he said. “Nobody’s going to be as passionate as you are. Nobody’s going to know the product like you do.”
Rizzo said he likes to hire people who have had experience owning a business, serving in a director-type role and working roles with a similar feel such as a furniture sales representative or insurance sales representative.
The panelists told the crowd that recognizing which personalities excel in certain sales roles is also key. Something as simple as a potential employee’s car can provide a clue, Rizzo said.
“If I see an interview pulling in a Mercedes, good chance they’re outbound,” Rizzo said. “Good chance they’re a hunter. They’re very money motivated. You’ve got to be very specific about the market that they’re going to target.”
Some salespeople close every deal they walk into, but only walk into two or three a month. Some salespeople take a lot of shots to increase the chance of a yes.
“Some people are going to have a higher close percentage,” Rizzo said. “Some people are going to be better at relationship marketing, where they’re in the lawyers association or the CPA (certified public accountant) association or they’ve got one buddy who knows everybody in town. And I’m fine with that. I don’t care how you get your numbers.”
For employees happy with pay around $50,000 – with a base pay around $40,000 and maybe $10,000 in commissions – they probably fall under the “farmer” type of sales focused on client retention and account expansion instead of the “hunter” role of acquiring new leads and clients, said panelist Zac Paulson, director of product and strategy at Fargo, N.D.-based ABM Technology Group.
“They may not be bad, they just don’t belong in the hunting world,” said Paulson, who previously led TrueIT, a member of CRN’s 2023 MSP 500. Advanced Business Methods (ABM) bought TrueIT in July.
Ways To Compensate Sales
The panelists shared the myriad ways they compensate sales employees and their expectations.
Rizzo said that pre-sales engineers can make about 3 percent profit on any deal they’re involved in.
Representatives can receive a percentage of a deal “every month that contract is alive because I want them to sell good deals and good clients,” Rizzo said.
Rizzo told the crowd that his salespeople have some authority over hardware and the first service call for promising client prospects.
“One of the things that we’ll do is a $20,000 network,” he said. “And they come and say, ‘Hey, we’re only going to put 3 percent on it because we want this client and we know that if we secure this hardware, it’ll end up in a contract.’ OK, let’s do it. But then they’re only getting compensated on that 3 percent.”
Employees also have some say over first-month assessment costs, including whether a customer gets that assessment for free or if it’s credited against the contract, Rizzo said.
Paulson said that he pays salespeople based on revenue because his business has fixed margins.
“They don’t have the option to change that since we’re pursuing the managed agreement,” he said. “And that’s really the start of the whole relationship. We aren’t really worried about the margins on a deal because we didn’t didn’t typically acquire it from a project.”
Christensen pointed out that revenue-based compensation can eat into margins for other MSPs. When he asked the panelists if they compensate based on gross margin after services delivered, Rizzo said he does not.
Instead, Rizzo wants his account managers to trust in what the pre-sales engineers and other engineers say they can deliver, the cost of delivery and the time to deliver it.
Douglass told the crowd that every 90 days, he evaluates how they are paid to make sure everyone has the right focus. Some periods, he wants to push cyber sales, for example. Other times, he might want to push managed services.
“It’s not set it and forget it,” he said.
“Hunter” salespeople can make money on projects and work they bring in and the first month of recurring revenue, he said. But after that, the customer is transitioned to a “farmer” role such as someone in customer success who can earn bonuses.
Sales Measures Of Success
Rizzo said that salespeople should bring in qualified deals within three months. Closes should come within six months.
“What we try to do is give them half of that ($)10,000 in monthly producing accounts to get them started. Somebody you’re going to have a conversation with. So if you’ve got a $10,000 a month account, it’s recognized as $3,000 monthly profits, you’re three out of your 10 already right there. You get somebody you can start building a relationship with.”
For account managers, Rx Technology expects them to bring in six figures a year within 18 months, Rizzo said.
At Pileus, Douglass said that salespeople have a certain number of activities that they should do on a weekly basis.
“If we don’t see that they’re hitting activity points, then we can go after them and try to help them,” he said. “We want them to succeed.
And as for tools the executives use, Douglass said he likes to use HaloPSA. Rizzo said he uses ChannelOne, ConnectWise and QuickBooks. Christensen said he was a HubSpot user in his MSP days.
And Paulson said that he keeps things simple – “We just have an Excel spreadsheet with some key metrics on it.”