Greetings!
Every three or four years, I run a compensation survey on sellers of information technology. I do it because I can't find industry-specific answers to questions I hear from business owners.
Simple questions like "how much are they selling?" and "how much are they earning?"
The public data that's good isn't relevant, and the data that's relevant isn't good.
I'm here to help :-)
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Owners, managers and salespeople share a common enemy, Their sales compensation plan. Salespeople are convinced they can earn more at that company down the street. Owners feel they are overpaying and rewarding the wrong behaviors. |
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Here are the common problems we see:
- Plans that reward the wrong behaviors
- No incentives for the best behaviors
- Plans don't adjust to changing market conditions
- They don't properly recognize the long term value of contracts and new customers
- Not enough retention incentives
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As we survey hundreds of resellers, we encounter some surprises along the way. Here are three from the 2022 Survey so far: |
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Truth #1:
Little Managed Services Sales are More Profitable than
Big Product Sales (but pay less)
Consider two sales.
- A $5 Million product sale. This might be a huge network or data center refresh, or any other large enterprise purchase. A sales commission on this might be about $32,000 (to make the math easy, an 8% selling margin and a 8% commission on gross profit).
- A $10,000 per month Managed Services sale. Sales commission on this is usually in the 1X range of Monthly Recurring Revenue, or $10,000 up-front commission.
Now, compare the two sales. Which one is more profitable for the company over time? Surprisingly, it's usually the Managed Services sale. (See footnote below for the math).
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Product Sale: They are selling the same bag of Legos as everyone else. One time event. Often highly competitive. No guarantee of repeat or residual business. Low Margin. |
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Monthly Managed or Pro Services Contract: Frequent long-term contact with customer. Often leads to future project sales. High margin. |
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So the product sale pays three times the commission of this managed services sale, but is worth less in the long run? Why? |
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Truth #2:
Companies that Pay the Most are Worth the Most
Our compensation survey doesn't measure the market value of the participating companies, only the sales compensation. Nonetheless, the "eyeball test" indicates the biggest, fastest growing sales teams include high-performing salespeople who make huge money (see Truth #3).
We can, however, run correlations on public companies. The big five tech companies pay average salaries of $220,000 - $450,000. Wow! Netflix famously encourages their employees to interview at other companies, then matches any job offer.
It does stand to reason that companies that pay higher compensation will attract better candidates and retain them longer. Sales teams with more experienced talent and lower turnover will certainly outperform the market.
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Truth #3:
Top Performing Salespeople in I.T. Make CEO Money
Over the years, we've found over a dozen salespeople who earn over One Million Dollars in total compensation per year. This year, with a bigger, more comprehensive survey, we expect to find many more.
This is not to say that Million Dollar salespeople are common, but they are not uncommon either. They perhaps fall in the top 1-2% of salespeople we survey. That's the kind on income opportunity that makes IT Sales such a great profession.
BTW, the average CEO salary in the United States is $796,200 as of June 2022, according to Salary.com. Should CEOs be quitting their jobs to get into IT sales?
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The more we look at sales compensation in our industry, the more idiosyncratic, nuanced, and (sometimes) irrational it becomes. Essentially, employers pay and salespeople earn what they are able to negotiate and what they perceive the marketplace to be.
In the months ahead, I'll be getting more data from more resellers with more types of business models. I plan to publish the findings sometime this fall. If you'd like to participate in this survey, and get first-hand access to the results, click on this button. Thanks!
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Footnote: The Math Behind the Sale Examples
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Managed Services Sale
$10,000 per month for 78 months (retention) times 52% margin* = $405,600 GP
Product Sale
$5,000,000 one time sale at 8% margin = $400,000 GP
The managed services sale generates more profit over time than the big product sale. Not to mention likely customer growth and spin-off project business over time. That's why these sales are valued so much higher by investors when buying companies.
*The retention and services margin will vary depending on the maturity and skill of the provider. The example here shows actual realized numbers from one of my clients.
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Jersey City, NJ
July 26-28
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Orlando, FL
September 13-15
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How to Deliver Amazing Proposal Presentations |
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Coming Spring 2022, an Updated
Annual Compensation Report
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Mike Schmidtmann coaches business owners and sales leaders across the USA. He works to drive results in sales recruiting, new business development, and profitability.
Mike led sales for Inacom Communications for ten years. then founded and built a $30 Million business unit for SPS.
Mike produces the award-winning Trans4mers webinar series on IT sales and management subjects. He is a frequent public speaker on business topics.
He lives on a farm in Northern Virginia with his family and assorted horses, alpacas, goats and dogs.
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Play "Stump the Chump"
E-Mail Mike with a vexing and perplexing question and you'll get a telling and compelling reply.
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Mike Schmidtmann
(703) 408 - 9103
Mike@Trans4mers.net
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