Should You Pay Commission to Your Director of Demand Generation

Directors of Demand Generation are usually responsible for creating, generating, executing, monitoring and reporting on campaigns that bring in net new contacts or help existing contacts move along the funnel closer to a sale. Typically this person resides in the marketing department and is an expert on both data and marketing automation software,  as well as who your ideal customers are, where to reach them and with what message to drive the desired behavior.  Because they reside in the marketing department they often fall under a compensation structure like all marketers – salary plus a bonus. 

But, what if we didn’t follow that usual approach? 

What if we consider these demand generators as sales people and move them to more of a variable compensation structure? Would that boost performance?

After all, they are driving leads and ultimately pushing deals into the pipeline. That sounds like work usually done by sales people who are paid on commission based on performance.

For clarity, let’s first look at typical compensation and then we’ll talk about how to play with these elements to achieve a desired result.

The usual sales compensation package includes one or more of these components: 

1. Salary – typically paid every 2 weeks or semi-monthly during the term of employment.  This can be higher or lower depending on the skill set required to perform the job capably and with some expertise and credibility.
2. Bonus – typically paid annually or quarterly and tied to both corporate and individual KPIs
3. Commission – typically paid monthly or quarterly and tied to a percentage of closed new business or additional revenue and meant to motivate employees to bring in additional revenue
4. Perks – benefits, casual dress, flex hours, stocked kitchens with snacks and/or alcohol, ping pong or foozeball tables, work from home days, etc.

So, how would you pay commission and what might it look like?

One of the first questions in a variable compensation payment model is what is the ratio of salary to commission to achieve your desired result and keep your employee happy?  How many perks do you need to throw in to top up the perceived value of compensation? And how does this all relate to your specific Director of Demand Generation?

Base salaries are usually paid in conjunction with the length of the sales cycle. Typically larger base salaries are paid when the sales cycle is long because that sales person needs to support themselves while they’re working to close their first deals.  Additionally, long sales cycles require a different skill set which could include consultative selling skills and the ability to keep prospects engaged through several months. Plus whatever other skills are required to understand your product or solution and sell it with expertise and credibility. Fast sales cycles that close business in one phone call mean that a sales person can live off of a lower base salary because they are getting paid commission regularly.

If we translate this to your Director of Demand Generation, regardless of your particular sales cycle, remember the large skill set and areas of expertise required to be successful.  This leans towards a higher base salary. Now factor in your length of sales cycle. Next, consider the impact of your particular sales cycle.

Another metric to factor in is the close ratio. The higher the ratio, the more your team has to work to close business and the higher the compensation tends to be. Reducing your close ratio is a topic for a future blog, so stay tuned.

The final consideration is how to calculate commission. To do this effectively, you'll need a CRM as a starting point, and probably marketing automation software as well.  (Listen to this webinar about CRM and marketing automation to learn why). There are various ways to calculate which deals have a commission owing. One approach is to track the origin of the lead and pay commission to the Director when the deal closes. That is typically coupled with commission, at a lesser percentage, of how many leads get pushed to sales from their efforts. None of this would not be possible if you didn’t have the required marketing technology (CRM and marketing automation software) in place. 

The final check is against total compensation. Are you still offering a competitive salary that will help you attract and keep top talent? Or have you potentially crossed the line and are now offering compensation that is too generous? You will need to have a total figure in mind.

Marketing and Sales Becoming One?  

By the way, we think this is all part of the blurring of the line that we see between Marketing and Sales. In fact, we’re doing more and more work with the VP of Sales than we have ever done.  Misalignment between sales and marketing technologies and processes costs B2B companies 10% of revenue or more per year. 

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