When companies first hire sales staff abroad they do it because they want to make sales and open a new international market.  An obvious question is how to set up the right incentive plan to get their sales people to make more sales.

There is a temptation to propose a low salary with a juicy commission plan.  But when you are entering new foreign markets, this is not usually a good option if you are serious about developing your international business.

The main problem is that commissions are based on percentages and numbers.  When entering a new market it’s hard to come up with good numbers.

But that’s not all. There are a few things that come into play related to the international aspect of these sales. Here are two of the differences you need to take into account when coming up with a good compensation plan to drive sales performance in a new foreign market.

Your Sales Person Wears Many Hats

It’s true in all markets that salespeople where many hats, but when selling to new international markets your salesperson also has to adapt your sales and marketing tactics to a different culture.

Whether your salesperson is from the local market or is from your home country, he still goes through a period of adapting to being the connecting point between two different cultures.

Most companies find they need to adapt their original sales and marketing tactics when they first start selling in a new country.  There is almost always some adaptation needed to come up with a good sales strategy.

This takes time.

And it also takes teamwork with the home office.  This means he’ll spend more time wearing different hats than if he was selling to a market feedback cultural adaptation.

This takes up even more time.

And the trouble is: no one can really estimate just how much time this will take until you have been selling to your new international market for a while. You want to make sure you have the right person doing the job for you.

Cultural Differences In Compensation

Given that he already has so much to do, you have to make it easy for your salesperson to fit in well within his environment. Different cultures have different sales practices and you need to make sure your compensation plan works well to drive sales in this environment.

There are many different types of cultural blunders linked to expecting one sales compensation plan that works in some countries to work well in other countries.  And it’s not only a question of knowing where bribes and where they are illegal.

• There are countries where commission-only based sales do not work well simply because the legal system does not make it an attractive or easy set up to work with.
• There are countries where not having a company car is not a good sign.
• In some countries payment of overtime is expected and in other countries there is a certain level of tolerance for non-payment.

Even if you think compensation information is between you and your salesperson, the other people he comes into contact with will probably notice any different practices.  This includes your potential clients.

And this is where funny things can start.  People from different cultures can make wrong assumptions that impact how your company is perceived.  Salespeople who earn big commissions because they are successful are usually proud to show this in North America for example.  But this is not the case in other countries.

Two Step Approach

You don’t want to create any cultural blunders when you first set up your compensation plans for the first salespeople you hire to open new international markets. This is why you will probably look at a two step approach. In the first step:

• Companies with little budget and only focusing on immediate sales will try a compensation plan based on large commissions or a commission-only plan… in markets where the legal system makes this easy to do.

• Companies focusing on sustained international business development will invest in a salesperson capable of wearing many hats and helping them adapt to a new market. They will probably pay him a fixed salary and maybe a smaller commission at the end of the year.

Once businesses become familiar with cultural differences in what works in driving more sales, they can evaluate how best to set commissions and sales targets for an all round win-win situation.

I’ve worked for a few North American companies setting up European offices to develop more European sales.  There was never a sophisticated commission plan to begin with and targets were only set as guidelines.

There was always a good level of flexibility in the first 2 years.  This was the average length of time needed for the North American home companies to learn about their new market, including how sales were made abroad and how to adapt to the differences.

But there were always weekly calls to a senior executive in the North American home office.  These weekly calls made it possible for North American management to stay current on all activities including actual sales results and expectations.

There is no best way to set up commission plans and targets for all new foreign sales offices.  You need to know the sales environment to learn what works best and this takes time.

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Paying commission wisely is a big challenge for business owners and managers. Commission can either drive sales performance, or turn your sales team into a bowl of oatmeal. Designing a commission plan that drives sales performance isn’t as easy as it sounds. There’s a minefield there, and you have to navigate through it successfully to have a commission plan that works.

Here are nine thoughts about commission plans and compensation:

1. I hate the word “target.” I don’t like the word “plan” when used as a substitute for a job requirement. I even shy away from the word “goal.” These words sound too tentative. I had a target age of retirement at age 40. I planned to have $10,000,000 in the bank before I retired. I had a goal of buying a 10,000 square foot house. Yet, none of those things happened. So much for targets, plans, and goals. Did I mention I want to lose fifty pounds?

Why don’t you simply just say what you mean. How about “minimum acceptable revenue produced,” as in, “Derek, your MARP for 2010 is $1.2 million. Got it?”

2. Most commission plans are based upon a percent of something. But if the something is gray or unclear or inconsistent, the percentage amount will be gray or unclear or inconsistent. How can employees be clear and consistent in revenue production if you’re not clear and consistent in how they’re being paid? Clarity is king.

3. Don’t roll out a new compensation plan only to change it one month later because you had to rethink a bunch of stuff. Do your homework. Accurately predict your losses and other challenges that will arise with the new compensation plan. Plan ahead. Then implement it. No going back, no waffling, no negotiating – it is the new commission structure. If you must, review the plan annually and make whatever small tweaks are required.

4. Compensation plans should do the best job of compensating your best performers. It’s okay if your bottom 10% of sales performers quit every year because they’re not making enough money working within your commission plan. Hire a new group who won’t be in the bottom 10% the next year. Don’t worry about low performers. Do you really want them? Do you really need them? Make sure your structure compensates high performers.

5. No compensation plan will make every employee happy. Some won’t even make any employee happy. Do what you need to do to run your business. Compensation should drive performance. If it does that, you’re a winner.

6. Whenever an employee complains about your compensation plan and has a suggestion for you (“How about if we pay 12% instead of 10 %”), ask “What are you willing to give up to earn 12%?” They won’t have an answer. End of discussion.

7. Pay “super commission.” If your commission rate is, say, 8%, consider paying 9% once the salesperson meets their monthly sales requirement (or some other landmark), and only 7% commission when they don’t. That’s super commission, and better than paying everybody 8%.

8. Pay super-dooper commission. Add a bonus for making 10% over minimum expectations for annual sales production. That’s super-dooper. Use what you’re saving paying the low performers in #7 to pay your high performers (refer to #4).

9. It’s okay if salespeople make a lot of money…if they earn it. I’m amazed at the number of small and medium-sized businesses that believe, either consciously or unconsciously, that there should be a cap in salespersons’ commission earnings.

Sometimes it takes this form: New compensation plan is implemented > it works like it’s supposed to > the best sales reps make a lot of money > management thinks they made too much so lower how much reps can make the next year> high performers quit performing or leave the company. Let your plan work. It’s okay if salespeople make lots of money. Part of that money goes to you. What you want is lots of salespeople who make lots of money. That’s how you can make even more money.

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