I need the kind of salary advice only a supportive woman can give. But since I..

[sachio]

... but since I can't find that, I'll ask a Mustachian!!

I have an interesting Job. It involves increasing the conversion rates of an e-commerce website (the amount of people out of 100 visitors that 'convert' or buy a product. 3 buyers of 100 visitors = 3% conversion rate). We are selling high priced goods, so each buyer makes a big difference. Now to my question. I have been set up with a very attractive offer by this company.

The amount which I increase the conversion rate, is the amount my salary increases. For instance - if I increased from 1% to 2%, the amount of increase is by an additional 1, or 100% (it doubled in other words). From 2% - 3% is still by a single point, but this time 1 is half of 2, so it's only a 50% increase, if you get what I mean. So with my base salary, I would have it doubled in the first case, and summed with 50% of itself in the second case.
Conversion rates are evaluated quarterly, and increases are compared over the same quarter, previous year.

This is a wonderful deal, but it becomes difficult to negotiate in this upcoming quarter for the following reason: Instead of 1 store's conversion rate, I am now responsible for 6 stores' conversion rates. Each store is selling a different sort of product. Home furnishings, lamps, office chairs, etc. My CEO during our discussion last week said, we'll run the same deal now, except, my salary will be calculated by the original store's increase over same quarter, previous year, averaged in with all the other stores. So in other words, I have 3 months to get 5 brand new stores converting at the same rate as the original store which has been around for 2 years. If I don't, I stand to lose money through the averaging in of lower performing stores.

I know this is complex - so as an example: I maintain a 100% increase in the original store over same quarter, previous year. Normally gives me 100% increase over my base salary. Now suddenly, I still maintain that 100% increase (meaning my company also makes 100% more money). Let's use 2% as where I raised it to, from 1% last year (hypothetically), and now I have to bring 5 other stores up from 0% the previous year since they were not making any sales - to at least where the original store is converting at 2%, otherwise, it will pull down the sum of 'percent increase' over the company's performance as a whole, and I will lose money, even though I made the company double money, and THEN some with the addition of the 5 other stores' sites.

The premise was that the boss would like to compare the entire company's performance. Whereas last year, there was only 1 website belonging to the company, and now there will be 5. (The reasoning behind multiple web-stores under the same roof is that it acts as multiple 'fish-nets', catching 5 times as many visitors for specified keywords on search engines.)

Now they are open to renegotiating, since I said I don't feel like this is one hundred percent up to par... but I am struggling to figure out how to negotiate so both parties are satisfied. Because right now I feel like my workload just quintupled, and my results were just devalued by a factor of 5.

Obviously I don't want to break the bank of this company, I just want a fair evaluation.

I know this is a question I should ask my girlfriend at night while we're in bed, but I haven't got one at the moment, and you guys are the next best thing.

Thank you!!!

[Jamesqf]

I'm thinking that basing salary increases on conversion rates could easily become a bad deal for you.  For example, suppose you manage to decrease the current 3% rate to 2%, but double the number of visitors.  That means you'd have increased the company's business by a third, but get no increase in salary, or perhaps even a decrease?

[alexgodden]

No amount of extra work should take your salary down - in my experience, an experienced e-marketer doing this kind of thing is a valuable commodity (I work in tech in the Bay Area). You should negotiate a way that the additional responsibilities add a smaller, but still incremental amount, on top of what you earn now. The numbers you laid out seem to imply that continuing to do your job will result in less money, which indicates your CEO doesn't know how to incentivize staff, and the company can't have too long to live with an idiot/asshole* like that running it.

*OK, lots of assholes are successful and run successful companies. I just wish they didn't.

[JohnGalt]

Why don't you just negotiate a base salary + bonus or profit sharing based on the e-commerce revenue?

I'd imagine that those conversion rates can be highly volatile - which will make your income difficult to predict.

Also - you're being given less incentive to do the harder part of the job.  I'd imagine that the difficulty to increase the conversion rate further grows exponentially with each increase but your compensation for those increases becomes smaller and smaller. 

[sachio]

Well, what's good about this, is that even though conversion rates are volatile, the previous year's rates were absolutely awful. So I'm safe for a good while, and by all prognoses, it seems that we are improving, and show signs still of improving. I agree that it's off that my work becomes devalued. And they are willing to listen to my proposal, should I bring one that makes sense. I am thinking along the lines of some sort of calculation, that would somehow weight the other stores, to keep my salary from going down for work I've already done. But to fairly evaluate my progress on the other stores. I'll talk to the CFO tomorrow because here's my concern.

If I bring 5 of the six stores to exactly the same rate as each other, but one of them is terrible, there's no way I should take a paycut for a net improvement. I just wish there was some legitimate math or something that would make it viable

[catalana]

Have you actually tried out the numbers?  Set up a simple spreadsheet, stick in your best estimate of what will happen and see how it turns out.  That should then help you arrive at a proposal for the CEO.

[tooqk4u22]

If they didn't creat all the extra stores and it was all under one rough like you thought then wouldn't it average out the same way?

[jpo]

Sounds like you should sextuple your base rate since you'll be doing six times the work.

[$_gone_amok]

How long have you been at this job? I think a base salary +bonus and profit sharing should be the way to go.

Conversion rate can only go so high but the net profit can grow as large as the company is willing to push for. You are selling yourself short to benchmark your salary against the conversion rate instead of the actual profit margin of the company.  For example, the average store has a 3% conversion rate but they are making 30M in sales and is still growing 3 to 4% year to year by adding more stores. Your salary won't go high anymore because the conversion rate has stabilized.

You should tie your bonus base on the actual sales made or some kind of mutually agree upon target set by you and the company.

[AJ]

Why don't you just negotiate a base salary + bonus or profit sharing based on the e-commerce revenue?

This. I think you should ask for a regular base salary, with bonuses per store based on how much you increased that particular store's conversion rate by. So, if you increased 4 store's rates, you get those 4 bonuses but not the others. That way one bad quarter for one particular store doesn't wipe out all your work.

[gooki]

I'd be gunning for base salary + a percentage of revenue (note: revenue, not revenue growth). This means once the company reaches it's maximum sales volume (determined by supply/demand) you are still being rewarded for your current and previous hard work.

[ShanghaiStashing]

The main issue I see is that this incentive system isn't clearly linked to what the profit drivers of the business are. A previous poster effectively pointed out that you are compensated on a very, very narrow metric which isn't the only factor in determining profitability for the business (e.g., if traffic goes up but conversion goes down there is the possibility for more sales with lower conversion). As a result, your goals are not clearly aligned with the goals of the business, and in fact you actually have a disincentive to 'over achieve' because that hurts you in the long-run.

The second issue is that this compensation system will only be effective for a very short, short period of time. There is a maximum possible conversion rate that you will reach fairly quickly after which your compensation goes down despite the fact that you have delivered lasting value to the business. You might realistically get 18-24 months out of a system that is dependent on YOY performance improvements for such a narrow item, but after that you'll be stuck.

So what does this mean for you? I suspect as others have said a system that gives you base salary, cash bonus and profit sharing is best. I would likely have the cash bonus dependent on qualitative assessment of your performance and short-term metrics. For instance, cash bonus could be dependent on achieving specific conversion rates for the other stores and growth for the existing store (each bonus should be separate so you are equally motivated to achieve them all) within a given time frame, and the profit sharing is a simple 'if the business does well you get some extra' metric. If the business is not profitable, then you would need to make it revenue sharing until it is profitable.

In this, you are effectively incented to achieve both short and long-term goals for the business. What you'll have to manage is to find a 'total compensation' that is within reach that the owner is comfortable with (likely the cash + base) and 'upside' that rewards you for overachieving that the owner can also be comfortable with.

[cosmie]

I've done work in ecommerce marketing (landing page optimizations/segmentations, search advertising, display advertising, etc), so I'm aware that compensation models can be a bit wanky - mostly due to the difficulty in fairly incentivizing the business as well as the marketer. However, your particular compensation model seems even more funky thank usual.

First off, as others have mentioned, your compensation shouldn't be tied to conversion rate itself. This disincentivies you, as the marketer, from putting in the time/effort of going after long-tailed conversions - those  which are low-volume but high-profit. Due to the smaller effect on overall conversion rate, you'll spend more time going after the easy fish, which may not be the most profitable choice for the company. If a "bonus" style compensation is what you're happy with, it should at least be tied to a better indicator: a percentage of revenue. If trackable, it should specifically be tied to a percentage of the additional revenue/traffic you drive (in the case of paid advertising, tagged links, etc). It's fairly easy to track revenue by funnel with proper use of Google Analytics.

Many business owners are wary of going into such a contract due to it's open-ended terms; one way to appease them is to attempt to figure out what your conversion-based bonus was, and see what percentage of profit/revenue that worked out to be. If it's an acceptable percentage to you, then use that as a base line.

Although I'm not sure exactly what your job entails, this blog post gives an awesome economic overview of the pros and cons of each type of pricing model, as it pertains to PPC pricing. The models discussed can be adapted fairly easily to other jobs as well, given proper tracking.

If you like your current arrangement, but are wary of the implications of the new storefronts, then deal with those specifically. Keep your current structure for the established store, but ask for a modification for the other storefronts. There are a few different compensation models off the top of my head, one of which is a flat percentage bonus of your base, simply for getting each store off the ground. On top of that, a performance bonus if you reach specific goals within a pre-specified timeframe (such as getting the conversion rates to 1% by the first quarters, 2% by second, etc). That way you're compensated for the extra work involved in establishing the storefronts, without risk of lowering your bonus as it pertains to the established store.

But again, that gets complicated and doesn't necessarily reflect the effort you put in. A base + percentage of revenue is the most simplistic and equitable way to go.

[sachio]

Thank you so much everyone. Your posts are really phenomenal. I finally got my boss to understand the downside from my perspective on linking my salary to "the company's" averaged conversion rate, whether it be from 1 store or 10 stores. We are selling high value, high profit goods so it tends to make sense. I do like what Cosmie is saying, it seems to feel right.

I will consider presenting a profit sharing option after some more studying. Thank you so much, you guys are definitely the next best thing!