A successful sales compensation plan will be competitive and will effectively motivate your sales reps and compensate them for their hard work, while allowing you to reap the rewards of their higher levels of performance. Unfortunately, many sales organizations’ compensation plans fail. Many companies have ill-defined, inappropriate, or confusing sales compensation structures that don’t work. Creating a great sales compensation plan is easier said than done. It’s actually quite a challenging task.
If your current sales compensation plan isn’t working, it’s time to rework it. Here’s how.
Know Your Options and Select the Right Mix
Sales compensation is far more complex than any other department. There are many different types of plans to consider. While your IT team, finance division, and marketing department all likely just receive a straight salary, your sales team’s compensation plan can be developed using for different components: salary, commission, bonuses, and sales incentives. The best sales compensation plans typically include all four of these components, although it isn’t necessary.
But finding the right mix between the components will be the most critical aspect of your plan.
Offering a Base Salary
If you opt to offer your sales people a base salary, you’ll want this number to be low enough to allow room for motivation and incentives, but high enough to support your sales people in meeting their financial obligations. Generally, this will fall between 15 and 40 percent. The base salary will be higher for sales people who perform many non-selling tasks and do not have as many opportunities to bring in revenue.
Considering Straight Commission
Some organizations, however, choose to create a sales compensation plan based on straight commission, which has its pros and cons. The thinking here is that the structure will force sales people to work as hard as they can to earn as much as they can, but many job seekers shy away from such a structure, and it could limit your candidate pool for new hires. In addition, this type of plan isn’t effective if you have a long sales cycle or lengthy training and onboarding.
The insurance and brokerage industries in particular have seen success with the straight commission structure, but for a number of other industries, this structure won’t work. For most industries, base salary should be offered with commission as part of the broader sales compensation plan, with commission making up about 64 to 85 percent of total compensation.
Adding a Bonus Structure
Any sales compensation plan you build should leave room to add a bonus structure in order to add incentive to reach new levels. Generally, a bonus would be paid at the end of the year if sales goals or other specific, measurable goals have been met or exceeded. You’ll want your bonuses to be large enough to motivate reps to achieve their goals.
Using Non-Monetary Sales Incentives
Most of the best compensation plans for sales also include non-monetary incentives, such as a trip, a gift, or tickets to a show. These types of incentives are often associated with sales contests, and they can give your sales people the extra boost they need during a slump or during your toughest months. These incentives should be fun and incentivizing enough to motivate sales people, or they won’t be worth offering. A $10 gift card, for example, probably won’t cut it.
Keep It Simple
A great compensation plan will be simple and straightforward. The calculations will be easy for your sales people to do on their own. And the plan will be easy to administer. You’ll want to avoid confusing and complicated plans that your sales people won’t be able to follow. If they can’t figure out what targets they need to meet at each stage of the process and how close they are to meeting their goals, the plan won’t motivate them into action. The simpler the plan, the more effective it will be.