How to Split Commissions Without Splitting Heads
Watching two salespeople fighting over who gets what in a split sale is worse than listening to two male cats having a territory fight in the middle of a hot August night. You don’t want to hear it, and you certainly don’t want to be in the middle of it. The bigger the commission, the louder and longer the fight.
These disagreements often leave a bad taste in everyone’s mouth and sometimes results in a good salesperson leaving the company feeling bitter and hard done by. It doesn’t have to be that way.
The Cause of the Problem
In my view, the cause of the problem lies squarely on the shoulders of the sales manager or whoever manages the salespeople.
The first cause is failing to realize the highly competitive nature of some salespeople. Some salespeople are driven, and I mean driven, by the want or need for money and to them, their commission is all-important. This is how they keep score and when you tamper with their income, you’re interfering with the game.
Not all salespeople are driven by the all-mighty dollar but, because a good portion of their take-home pay comes from commissions, they become annoyed, if not angry, when they’re not paid what they expect to be paid.
The second cause is not dealing with this potential problem before it comes up. If you have house accounts, accounts where commissions will be split with the house, or situations where more than one salesperson may be involved in a sale, the rules need to be spelled out in advance. That way the salespeople can manage their expectations appropriately.
The third cause is having a compensation plan that is 100 percent commission or one that is top heavy with commission. In other words, all or a major portion of the salesperson’s income is at risk (commission). You’ll have less of a problem if your people are on a high-base, low-commission plan.
When to Split a Commission
My first bit of advice is to avoid split commissions if you can. Don’t go down this path if you don’t have to because there is no easy route through the maze and you don’t want or need the aggravation. Having said that, there are some situations where a commission split is warranted.
A split commission is appropriate if you have a situation where two or more salespeople will be involved in a sales opportunity. A split commission is probably not appropriate if you try to split the commission between a salesperson and non-sales personnel such as technical support, telemarketing, customer service, etc. While these people are important to the sale, it’s the salesperson who is on the firing line and whose income depends upon making the sale.
A split commission may be appropriate when a salesperson is working on a house account and is doing more of an account maintenance function rather than the classic sales role, although this is usually a situation that warrants a reduced commission rather than a split commission.
How to Split
There is no easy answer to this question, but I have some ideas to share with you.
The key is to divide the sale into some natural-occurring events or situations and then apply an appropriate percentage to each part.
For example, let’s assume the sale can be broken into four parts: lead generation, qualify and sell (I call this Probe and Prove), close, and post-sale support.
If a salesperson finds the opportunity, qualifies it and makes a sales presentation, closes the sale, and the product is delivered to his area where he is expected to provide after-sale support, then he gets a 100 percent commission.
If, on the other hand, let’s suppose Salesperson One finds a lead and passes it on to Salesperson Two who then qualifies, presents and closes the sale. The end product is delivered to Salesperson Three’s area and he will be responsible for the after-sale support. Now we have a three-way split on our hands.
Who Gets What?
Now it’s a matter of deciding what percentages to assign to each portion of the sale. One way is to simply divide the commission into four equal parts, giving a 25 percent portion of the commission to Salespersons One and Three and the remainder (50 percent) to Salesperson Two.
Rather than simply dividing the commission in equal parts, it makes more sense to assign percentages in proportion to the effort or difficulty involved. For example, a better split might be:
- Lead Generation: 10%
- Probe & Prove: 50%
- Close: 20%
- Post-sale Support: 20%
A typical three-part sale might be:
- Lead Generation: 15%
- Probe & Prove: 70%
- Close: 15%
These percentages are certainly not cast in stone but are presented here as guidelines. You’ll have to do the rest of the dirty work yourself. You may find that a typical split-commission sale only has two parts or perhaps as many as five to eight.
Do It Now
It doesn’t matter how many parts you decide to divide the sale into. What matters is that you decide how many parts and what percentages you assign to each part before you have to actually split a commission.
If you wait until you have a bunch of burly salespeople standing in front of you with their hands out, all wanting more than their fair share of the commission for a big sale, you’re in trouble, big trouble.
If you’re going to have split commissions, make them part of your compensation plan. Spell out the details up front so everyone understands them.
The Bottom Line
The last thing you want is a cat-fight in your office.