Figuring Nashville Sales Compensation

Most employers, and most professions have very straightforward salary arrangements. Typically, there is a set pay per week, month, or hour worked. Sales is different. Salespeople want to be compensated based on effort and performance. Many companies do this. Some companies do not. Most companies talk about sales compensation in shades of gray. They hide behind words like "potential" or "top salesmen can make..."

How does a candidate determine the actual compensation in a sales position?

Sales people are familiar with the "80-20 Rule." Traditionally, this has meant that 20% of a salesperson's clients will generate 80% of his or her revenue, or similar.

In salary translation terms, the "80-20 Rule" is different, and a bit more detailed.


Basic Idea:
You must find the range that the pay will be. The way to find this is to use the numbers the company gives, and translate that into true figures. To get the range, you need two numbers:
- 80% of the lower number.
- 80% of 80% of the higher number.
You will notice that these two numbers will wind up being similar, and they will form the likely range.

Suppose a company advertises that sales people will make between $60K and $80K. One uses the lower figure ($60K in this case), and takes 80% of that. For this example, 80% of $60K is $48K. That number - $48 K is a good average to expect.

Another way to do it is to take the higher number and take 80% of that, then 80% again, to find the likely number. In our example, 80% of $80K is $64K. 80% again is $51K. Notice how similar that is to the other number ($48K) from above? This is not a coincidence.


Base Salary Rules:
1. Most companies do not have a pay structure that will allow the sales associate to double base pay. They may say otherwise, but this is not at all the case.

But, it does give us a quick way to estimate pay for a good salesman.

2. 80% of 80% to get the range.
Suppose we have a position that pays a base of $35K. Double that, and we have $70K
Take 80% of 70K - $56K. This is the most you will likely make at this position.
Take 80% of that to get the true range of likely compensation - 80% of $56K is $45K.
Your expected earnings at this position will realistically be $45K - $56K.


Straight Commission Rules:
1. Most companies paying straight commission do not believe in their product. Otherwise, they would pay a base. However, some are still good companies. Nonetheless, the advertising of pay will be overstated.

2. Use the half and 80% rule.
Suppose the advertised pay range is $120K - $150K.
- Take the lower number to work with.
- Take half of the lower number - in this case, $60K
- Take 80% of 80% of the lower number. In this case, 80% of $120K is $96K. 80% of $96K is $76K.
- The real range of this job (for a great salesman) is $60K - $76K.

3. With straight commission jobs, the rule can vary wildly.
But, the fact is that it will almost never be more than the above rules. Those numbers are the most that one can expect to make.


Why this works. 
I seriously doubt that people actually work this math in reverse when trying to figure the amount to put in the job ad. However, it is well-known that sales jobs overstate the likely amount that can be earned. It just so happens that in order to attract the talent level they desire, these companies must overstate the pay to the extent that the 80% rule works.