Sales Commission Strategies: Digital Innovations Can Benefit All Media Companies

Fragmentation in the media industry makes advertising sales more of a street fight every day. Television and radio executives must find ways not just to motivate their sales forces, but to make sure they are motivated in a focused and productive way, all while keeping costs in line. This is a delicate balancing act indeed.

The Media Financial Management Association (MFM) sponsored an August 8 Webinar entitled Digital Sales Compensation: What Media Companies Need to Know to Incentivize Sellers and Grow Revenues.Led by two executives from Marketron, Dustin Wilson, Senior Director of Digital Strategy and Jeff Ulrich, Director of Sales Enablement Services, the session raised provocative questions and offered choices that are relevant to all media companies, ranging from those well down the digital path to those just getting started.

Developing a Commission Structure

A threshold issue is developing the proper commission structure, the primary alternatives being straight commission or a hybrid of base plus commission. The digital environment is dramatically different from the traditional spot sales environment, according to Wilson and Ulrich. It is significantly more competitive, lends itself to multiple tactics, has a higher cost of goods, and requires a much higher degree of seller sophistication. In short, digital needs to be learned -- it is a totally new service suite for traditional sales professionals. Surprisingly, in general, digital sellers prefer a full commission structure.

Once the full commission/salary + commission decision has been made, a deeper dive into the commission mechanics is necessary. There is no "industry standard" and the mechanics should be tailored to a business' situation looking at variables such as market size, location and the availability of talent. Options include calculating commissions on gross revenues, net revenues, per tactic (e.g., display, geofencing, OTT and video). Consistent with a "feed your eagles, starve your turkey's" philosophy, commission structures can also be tiered, providing more generous rates above certain revenue thresholds.

Each mechanism has its pros and cons. Commissioning on net revenues bolsters the profitability of the company but can be more complex to calculate and less attractive to sales staff, creating a dis-incentive to offer lower margin products. Digital display ads may yield a gross margin of 70% whereas video and other more expensive products may be less than 50%, Commission on gross sales is easy to calculate and creates an incentive to offer the best solution to clients, regardless of margin, but may also depress overall profitability. Commission by tactic, which can be gross or net, can incentivize the team to offer a more sophisticated and effective suite of components to an advertising campaign; however, this approach can also be very cumbersome, and sellers may gravitate to the higher commission products.

Various ad hoc features can also be built into the commission structure. For example, the commission rate can be increased for renewals, which incentivizes long term relationships. Or, conversely, rates can be higher at the beginning to encourage sellers to build a robust client portfolio. As a station strives to build its digital business, an incentive can also be developed to compensate sales personnel for hitting targets for new digital orders.

Failing to get the commission structure right doesn't just jeopardize top-line revenues, it is also expensive. According to data cited by Wilson and Ulrich, turnover among sales professionals is 35%, much higher than other roles. The cost of a new hire is almost $4,500 and the all-in cost of turnover can range from 50% to 200% of annual salary. Marketron has developed a Digital Sales Commission and Margin Calculator to help companies manage the multitude of variables that go into building the revenue and cost variables.

During the webinar, a question arose as to the pros and cons of having separate sales forces for digital and linear products. Interestingly, Ulrich encouraged a hard look at integrating the functions for each salesperson. Paradoxically, allowing each member of the team to sell both linear and digital products builds both productive collaboration and healthy competition. Moreover, the downside can be severe if the dedicated digital salesperson turns over, and developing a sales force of generalists reduces this risk. Another innovation involves providing non-monetary compensation, like additional sales and research support, to top performers.

Sales organizations operate in a challenging and dynamic environment that is without precedent. Fortunately, the digital sector has matured to a point where it offers innovations and ideas to media companies of all stripes so they can more reliably chart their futures.

John Sanders is a principal with the financial and valuation consulting firm Bond & Pecaro Inc.

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The opinions expressed here are the author's views and do not necessarily represent the views of MediaVillage.org/MyersBizNet.