I have a software company that I’ve mentioned before. We’re looking at hiring a marketing specialist. The person we’re considering is someone we know from another business relationship. She is very good and has proven herself. She is interested in joining us, now we just need to work out the compensation.
Her responsibility would include marketing but not sales. She would perform the following work:
Research (market and competitive)
Marketing Strategy
Creation of marketing collateral (website, brochures, sales letters, press releases, etc)
She proposed an hourly rate plus a percentage of sales. Our thought is that it should be an either or proposition - not both.
I know the potential earnings is relevant to how we pay. Right now, there is no other company (that we’ve been able to find) that is offering what we do; our software is unique. So, with that in mind… If we were able to sale our software to 10% of the school districts in the U.S - our annual revenue could be between 3 and 5 million.
I don’t believe we could get to 1% without a marketing specialist - so the person is important to us.
So, what would be an equitable compensation for this person?
You are hiring an employee, maybe your first, but would you consider her a founder of the company? I agree she will be critical but instead of percentage of sales consider stock/percentage of the company. Personally I’d put her on salary based on what you would pay her hourly for 40 hrs/week. She may need to work more but if she has a stake in the company it will be motivating. As the company grows you can increase her percentage of ownership/stock shares.
I doubt even you will be getting a piece of the sales since you are just starting out. Likely everything will be going back into the company for a while. Maybe I’ve misunderstood where you are at with it. You don’t want to pay out quarterly checks to her to account for sales if you aren’t turning a profit from those sales.
Jen, Thanks for the input. I have 4 partners and we’ve decided that we aren’t willing to offer any stake in the company. Our expenses are low since the partners have all contributed to developing our product and we haven’t had to pay for work other than graphics design. Our previous sales have covered our expenses to date, and for the near foreseeable future - so we would actually prefer to give up a percentage of sales instead of ownership.
As for percentage as compensation to her - we’re thinking something around 5 percent of actual sales. Less if she wants a guaranteed minimum since she won’t be receiving a stake in the company.
Got it. Sorry I won’t be helpful in deciding the correct percentage. I’ve never had my compensation dependent on sales in that direct of a relationship. But, you could start out small then as performance rewards increase percentage. You want to offer her the chance to increase her stake in the success above just increasing sales. Think of it as a commission check. It would be awesome to have a 5% commission and for a while that will be cool but if you have the idea of a 7% commission dangled in front of you, there is an increased motivation to perform.
Just thinking of ways to increase compensation that won’t cost you a fortune to start with.
"She proposed an hourly rate plus a percentage of sales. Our thought is that it should be an either or proposition - not both. "
Why not both? If she is a quality person you have to offer her a decent base pay. At the same time it would be a mistake not to offer your sales and marketing team a percentage of sales. Why are you affraid to provide base plus commission of total sales? You just have to be smart about how you you structure her salary schedule.
A percentage would be pretty sweet for her. She will develop the collateral once and then milk commission for the rest of the contract. In my lowly opinion it’s better to pay sales people that 5%. At 3-5MM projected a full time marketing person seems excessive. Of course I work in sales so I think sales people are the key to everything. Your brochure can’t write a contract.
Marketing Specialist is not a Sales Specialist. Her role would/should be to build brand awareness and increase trial. The best marketers in the world can’t earn a dime if your product sucks or your sales or service people suck. Therefore a marketing professional would be ill advised to seek a percentage based pay. Marketing Professionals should be paid for the strategic, critical and creative thinking and time. All a marketer can really be held accountable for is the leads their programs generate or the trials justified with accurate tracking and metrics. For example if she creates a program that generates 500 leads from a call to action and yet your sales folks close less than 1% why is that a strike against her?
Pay her for her time and thinking, bonus for leads and or small % perhaps based on revenue generated.
Remember marketing takes a while to generate leads and momentum perhaps as much as 6 months to get to a point of measurable ROI or longer. She’ll not be very motivated if she has to wait that long to earn a dime.
My $.02.
Thanks for all the advice. It does make sense to have a mix of hourly rate and percentage as the percentage could provide extra motivation. She is just one tooth in the cog as we are looking at hiring some sales representatives and assigning regions to each one.
I will still read and appreciate any advice offered here as we’re trying to find an equitable arrangement for her and us. thanks
You say marketing specialist, but it seems that she’s the whole marketing function. Is she the Director, Manager, etc, who specializes in Marketing, or is she a Marketing contractor.? Personally, I’d never pay someone in that role an hourly rate if they were on full-time, and not contract. Strategy = thinking…she bills by the hour? Collateral development, websites, etc. always run up against deadlines, over runs, etc…again, she’s charging by the hour? Trade show, event, conference on the weekend…billed by the hour? No way. I’d put her on salary, with a pre-defined performance bonus target based on a combination of company performance and personal performance. 5% of sales? On $5mill, that’s $250,000…what if it surpasses your expectations and hits $10mill? Do you want to be laying out half a mill for a Marketing Specialist?
It sounds like it’s overcomplicated for you right now, but if you’re going to hire another 3, 4, 5 people, what you really need is a compensation plan…not something where the person you’re hiring ‘suggests’ something… you’ll end up with a hodge-podge of hourly, salary, commission, profit sharing, bonuses, bring-my-dog-to-work compensation that will make it impossible to manage.
A decent salary with bonus opportunity based on profitability. Profitability keeps everybody focused on revenue and expense. Compensation based on revenue generation should be reserved for the sales team as that’s the only number they can impact.
If the package you come up with is more than it would cost you to outsource the work there’s a decent chance it’s not the right package.