By Todd Kalman
Senior VP of Sales, Marketron
Media organizations adding digital advertising to their sales mix face an interesting question: how should they pay commission on digital advertising sales?
In the pre-digital days, commission was simple. If an advertiser invested $1000 in a radio commercial, the broadcaster made $1000 in revenue. If the stated commission rate was 15%, the salesperson made $150. The math, and the expectations, were clear.
Digital adds new dimension to commissions
Digital advertising, however, introduces more complexity. As a media organization, you incur overhead to support digital advertising. You must then decide whether to pay commission on net or gross revenue. Additionally, you'll need to determine the right percentage to pay for digital sales and how to structure commission across the range of digital products. All of these decisions impact the bottom line, business growth, employee satisfaction and retention and more.
Digital is competitive, so commission structure has added importance
Selling digital advertising is a competitive business, which makes the answers to these questions all the more critical. The fact that your organization has not sold digital in the past doesn’t make it new to the customer. Many advertisers are already purchasing digital from a different provider simply because their media rep hasn’t offered it. To succeed in digital advertising sales, and ideally displace incumbents selling into your advertisers, we recommend these four digital sales commission strategies.
1. Pay commission on gross revenue.
Paying commission on gross revenue is simpler, more motivating to sales staff and helps establish your digital business.
Sales teams think about commission in terms of gross revenue. If you pay off net revenue, that number will always be lower than the salesperson’s expectation. This is doubly demotivating. Not only do they have to break out their calculators during every sale to figure out what it’s worth to them, the numbers they get in return also don't inspire their best efforts.
Keeping reps motivated is an outcome of paying on gross revenue
This paradigm is particularly dangerous since the competition has been selling digital advertising for years. Sales teams new to the game face a learning curve and likely an existing digital vendor. To overcome these challenges, they need more motivation, not less.
Further, paying on gross revenue incentivizes doing what’s best for the customer. If you pay on gross for radio and net for digital, guess where your sales staff will steer their advertisers?
This undermines the growth of your digital business and hurts overall sales and revenue. Customers do not renew if they don't receive solutions that align with their business objectives. Paying on gross revenue for digital products motivates your sales team to do what’s best for the customer.
2. Determine the percentage based on your market and business circumstances.
While there is no “magic number” for what percentage commission to pay on digital sales, we recommend making your digital sales commission rate the same or higher than existing new business and/or direct sales rates.
Start by running the numbers in your back office to understand net profits off digital sales. The margins might be slimmer than the past, but resist the urge to pay off net. Even if you have to squeeze margins for now, it will pay off once your team establishes the digital business and relationships with customers.
If you're new to digital advertising sales, start high. This goes back to motivating the sales team. You may need to pay a disproportionate percentage for a certain amount of time to incite behavior change. Remember that this is not forever. Once you have been selling digital for a few years, you can and should adjust. By that point, sales staff will have more knowledge of how digital advertising works, including the back-end costs, and will likely understand why it’s fair for commission rates to decrease.
Capping commissions makes sense for high-cost campaigns
You can always cap commissions on individual campaigns if and when it makes sense. With search engine marketing (SEM) and social media campaigns, for instance, a majority of the expense goes to the vendor (like Google or Facebook). As a result, a high commission rate on those sales may not be reasonable.
Putting a cap in place for specific instances like SEM and social ensures you doesn’t end up paying an exorbitant commission that generates more profit for the third-party platform than the broadcaster.
As a rule of thumb, be generous when setting your initial commission percentage. You are investing in the future. Digital advertising is a necessary business strategy. Like any new venture, it will take some capital to get off the ground. Don’t let short-term math inhibit long-term growth potential.
3. Use a blended digital rate.
Build digital advertising commissions from a blended digital rate versus using different rates for each digital product or tactic.
Per tactic rates add unnecessary complexity that, like paying off net revenue, can demotivate sales teams. Optimization efforts can affect per tactic rates, as an advertiser’s product mix is adjusted based on performance. If that happens mid-campaign, and you use a per tactic rate, the commission suddenly changes.
Sales staff then believe (accurately) that they can’t rely on their projections, and their income becomes more unpredictable. That scenario leads to unmotivated employees and potentially increased turnover.
Different commission rates for different tactics can also encourage sales staff to recommend tactics with higher rates instead of advocating for what’s best for the customer. As noted, this short-sighted approach leads to negative long-term consequences. Advertisers may eventually leave to find a digital advertising partner that will put their needs first.
4. Increase commission on renewals.
Finally, incentivize renewals instead of new business to motivate sales teams to do what’s right for the customer.
Many organizations offer higher commission rates on new business. We recommend incentivizing renewals instead. By increasing commission on renewals, you will encourage sales staff to present the right products and strategies and actually follow through on their execution. This approach proactively reduces customer attrition rates by giving sales teams a concrete reason to deliver on their promises and outperform the competition.
Research backs up incentivizing renewals as well. Consider these stats from Invesp Consulting:
- It costs 5x more to attract a new customer than to keep an existing one.
- The probability of selling to an existing customer is 60-70%, compared to 5-20% probability of selling to a new prospect.
- Existing customers are 50% more likely to try new products and spend 31% more compared to new customers.
- Increasing customer retention rates by 5% increases profits by 25-95%.
These digital sales commission strategies have one thing in common
They motivate sales teams to prioritize the products that best meet their advertisers’ objectives and requirements. In turn that promotes lasting relationships and revenue. Navigating commission on digital advertising sales may seem tricky, but with that guiding principle, it’s simple to build a strategy that sticks.