QUESTION: I have an instance where a new client company would like to hire a salesperson but only on a contract 1099 basis with a small base and a high commission rate and maybe transition to employee status if they sell well. The reason the CEO gives appears to be around lowering the hiring risk for them, having been burnt by a salesperson in the past who promised the earth in their niche and did not produce. They are a small software provider, and they need the salesperson. They do not have one currently. – Sean
ANSWER: So there is pain there, but the CEO is basically hard minded to secure a salesperson, and keep his risk low, with a strong track record. How do I turn this situation around and get him to commit to investing market rate upfront on an employee basis?
Basically, we have a CEO that wants to hire a salesperson and not pay him or her because they have been burnt in the past. I used to place salespeople, Sean, so I have had these conversations. They go, “Well, Mike, if he or she is so good, I am going to pay 2 or 3 times the commission rate of everybody else.”
I reply, “If I find Mr. or Ms. Really Strong Salesperson, and in this situation, Mr. CEO, you have not proven that you have a sales process at your company. You are looking for someone to create it. You are looking for someone to build a pipeline. I do not know what the average size sale here is, but if it is a large software sale, that could be 6 to 12 months before they are closing anything substantial, meaning Mr. or Ms. CEO, you are going to be asking them to live off your small base salary until they prove themselves.”
This would be my dialogue to best tackle this, Sean:
Mr. CEO, so if I am hearing you correctly, you are looking with somebody with proven sales ability that has a strong track record of sales success selling software in the XYZ space. Correct?
Okay, I need you to help me understand. I am going to go out to the marketplace and will be talking to people that make $100,000 to $150,000 base salary and if they have got a strong track record they are making between $250,000 and $500,000 in earnings – probably $250,000 to – a really good person, $250,000 to $300,000 even. You said small sales salary, so let us say they want to offer $40,000 or $50,000. Help me understand why somebody who is doing really well, producing at a $300,000 level, would walk away from that pipeline, which at $300,000 is $25,000 a month in earnings, to go to work for you for $4,000 a month for 9 months while they build the pipeline that benefits you. Help me understand why they would walk away from that.
Sean, you asked me the question, how do I convince him? You cannot convince him. He has to come to the realization himself. He has to understand that there is not a line of strong salespeople looking for work.
He needs to realize that on a small salary, he will only attract unemployed or underemployed salespeople, not the overconfident, unless there is a huge equity piece offered. You would need to know the argument you would give an outstanding sales rep to cut their earnings 70% to work for you, and then just shut up and listen. That is the only way you can convince them.
The question, if I am on the phone with that CEO, is – are you happy with your current level of revenue? What happens if there is no one selling for you in 6 months? What happens if you hire people that take on this role, but they only produce $1 million in revenue with your target being $3 million? What are the lost opportunities?
I would also ask how much he is losing every month that there is someone not selling. Especially since it is software. Software, it is not like you are manufacturing a machine. Software, if it is already developed, he has already made the investment in the software through his engineering team. The cost of implementing software is pennies on the dollar of what the sales price is because software, you are recouping the R&D. Then, let us say, he wants to bring somebody on at a $2 million quota, not uncommon in software, probably even larger, that is $160,000 a month. Ask if he is truly unwilling to risk $10,000 to secure $160,000. That is a choice the CEO is going to have to make.
The fact that he does not have a sales rep, says to me that is he does not have an accountability system or a way to manage sales, and he is looking to bring somebody on that is an individual producer. The only way he can do that is you and he together, if he is convinced he wants to invest in a high performer, is to look at his or her track record for the 5 years leading up to this job and then just validate that through reference checking. If the candidate fails or goes somewhere else, that is a risk the owner has to take.
Great question, Sean. It is an area I am a little bit passionate about. Basically, I get really frustrated with CEOs or VPs of sales who ask – How can I get great talent and take on no risk? When you have the answer to that, you tell me.