Monday, November 26, 2007

How is a good Sales Engineer compensated?

I've been asked a few times in the last month or so, how are SEs compensated. This is a good question, and there are a couple of ways at looking at it.

First of all, what is the best way for the company to compensate their SEs. This is closely related to how a company should pay anyone in Sales. Basically, it should reward people who are able to sell loads of product, and be an incentive for people to work as hard as they can to achieve their goals. From a company perspective, giving away a % value of new business is not as hard as having fixed costs that are not connected to their revenue. Therefore, a company would best focus on making the SE earn a larger fraction of their income from commission. The balancing factor is that companies cannot afford to lose SEs who aren't successful, as they take more time in general to train than Sales reps.

The flip side is from the employee. First of all, the incentive side is good, as it drives your actions towards the right goals. Secondly, the employee needs a good base as well, because the job should provide for the ups and downs of the sales cycle, and the fact that SEs are not fully responsible for the results. So the fixed component should provide for the employee and should be competitive against the other positions they could be holding down.

So most of the time, an SE will end up with a split between 70/30, 75/25 or maybe up to 90/10 of fixed to bonus income. As an employee, you should feel comfortable with whatever level you agree with, make sure it gives you confidence in what you are trying to achieve, and what you need for yourself or your family.

The calculation or structure of the bonus is also an important factor. It could be as simple as a percentage of revenue earned either by the sales team, deals worked on directly, or even how the whole company works. This will depend on what resources the company has to work this kind of thing out in an impartial way. It also depends on whether the SE works closely with particular people in the sales team, or is a general resource shared across a large territory.

As for specifics of the calculation, it is hard to comment here. It depends on the margin of the products or services being sold, how many people get bonuses paid out of it already, whether it is direct/indirect, and whether the company has already established a market, or it is new.

I have worked under various different schemes, and the ones I find best and fairest ensure that the SE and the Sales reps need the same goals (with the same revenue targets) so that they work together as a team. Of course at bonus time, it is also good that all members in the team share in the happiness - but in varying degrees of course.

Things that I don't like for SE bonuses are when there are huge differences in making quota and not - as this is not fully under the control of the SE, it is very disappointing to miss out on a large bonus by a very small amount of revenue not coming in.