This article is about a soapbox issue I’ve been focused on for much of the last year. It’s the glaring miss in your new business commission plan.
Let me set the stage for this conversation.
Almost every station pays a higher commission for new business. That’s because it’s so important. No disagreement there.
But, there’s also this fact. Every station I have ever worked for knows how much a client has to spend in order to really see the impact of their TV/Digital program. Recently, in a Top 10 market, the consensus number was $25K per month for 3 months. In a smaller market, they said it was $5K per month for 3 months. But every market has a number. Spend that amount and it works. Spend less and the client won’t see results. I’m guessing your AE’s and sales leaders intuitively know that amount for their station/platforms. Many managers even work with AE’s to prospect with that higher spending level in mind.
“Results level spending” means that when a client spends that amount they are likely to renew. If they spend less than that, chances are they’ll be “one and done.” And one and done is horrible for our new business efforts.
So, here’s the question. Why are you paying a higher new business commission for sales we KNOW aren’t likely to renew? That is, in effect, rewarding behavior that really doesn’t have a long-term benefit to the station. Stop paying a new business commission for small orders. It’s bad for you, bad for your clients, and truly bad for the AE.
Let’s take a step back. We pay a new business commission because a) new business is critical and b) we know it’s harder selling than transactional business. Like all commission plans, we’re trying to reward the behavior we want to encourage, and we surely want to encourage more aggressive new business development efforts by our AE’s.
But AE’s need to understand that new business only becomes profitable for them (and the stations) when the client renews. I like to teach AE’s new business math to understand how much work it is to get a new client on the air. How many prospecting calls to get a good lead? How many good leads does it take to get a presentation? How many presentations do they have to make to close a sale? The exercise is designed to show AE’s that they’ve spent 30 hours or more on a typical new business sale. Even an aggressive new biz commission plan doesn’t make that profitable. It’s profitable when the client renews. So, when we don’t ask for enough money and the client doesn’t see results, we lose them. One and done. That’s a huge loss for the AE and for the station.
How do you solve this problem of decreasing new business churn and helping your AE’s see the power of our products? Only pay a new business commission when the first order spend is higher than your churn number. In other words, if you know it takes $5,000 for three months to get a renewal, then why would you pay a new business commission for an order that’s less than that?
Let me be bold. The win of an advertiser continuing with your station is so huge that it actually makes sense to pay a HIGHER commission for an order that will likely renew. But I would never pay a new business commission for any order that doesn’t spend enough to see an impact. If I were in charge of your pay plan, I’d lower the commission on any new client who didn’t have “results level spending.” But I’d make it even higher for those orders that did.
I will guarantee you that the minute you only pay a new business commission for bigger schedules, your average opening order will start going up, and so will your renewals. That’s why this is a huge win!
There’s also a significant side benefit. Your AE’s, especially the newer ones, get demoralized when the schedule they sell a new client doesn’t work. On the flip side, when they see their clients getting results, it increases their belief in the power of our product.
In our training sessions with stations, we always say, “Serious Money = Serious Results. Little Money = Little Results.”
As leaders, we’re encouraging our AE’s to ask for little money. Hey, we’ll pay you a big commission, regardless of the spend. When you change your pay plan, folks will immediately start asking for more money, results will go up, and your first new business sales will lead to renewals.
Paying a higher commission for new business sales that will never renew because of little results is one of those examples of “this is the way we’ve always done it” thinking. As our business changes, it’s one thing I think we need to change.
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