Selling is getting more difficult — at least 61% of salespeople consider it much harder than 5 years ago. Decision-makers are less approachable, customers are less trustful, and their challenges are bigger. All these factors may easily undermine your sales reps’ motivation unless you set up your rewarding system and come up with smart sales compensation initiatives.
Sales compensation refers to the payment a salesperson receives for their work, which commonly includes a base salary, commission, and additional monetary incentives to motivate a sales representative.
Things to consider:
Sales compensation should be well-planned to drive the sales team’s performance to success. This is why when speaking about sales compensation, one commonly means working out a clever sales compensation plan that would:
There are many examples, or models, of a sales compensation plan. We will consider five models applied by companies worldwide:
The main advantage of this plan is that it makes it easy to calculate the compensation and predict hiring requirements. Besides, it relieves sales reps of stress associated with not meeting the goals.
Among its main disadvantages is the fact that without commission, sales teams may not be motivated enough to close many deals. As a result, a company risks losing its top-performing salespeople who will be interested in receiving commissions for their extra efforts. That is why this model is not common among sales teams now.
A commission-only plan presupposes paying sales reps based on their performance only. So, if they don’t close a deal, they get a zero. This model isn’t risky since the company pays per closed deals only. It also motivates sales representatives to work harder and get more money.
On the other hand, this sales-compensation plan makes it difficult to foresee your expenses and plan your budget correspondingly.
This is the most common plan that allows sales reps to get a fixed income and stimulates them to sell. Besides, this model is beneficial for a company, which can budget the base salary and employ a motivated competitive sales team.
As a rule, the percentage of commission in this plan is lower because of the fixed salary. The pay mix (the ratio of fixed pay to variable pay) usually depends on the industry and sales roles.
There can be:
This plan can be used if you know that your sales reps tend to meet the pre-set goals. You may foresee your expenses by paying your salespeople a base amount and a predictable bonus per the particular number of sales.
For instance, if you know that 3 out of 5 sales representatives always hit quota and get $40,000, you may annually budget $120,000 for bonuses. Nevertheless, this model still makes it hard to motivate your salespeople to overperform.
This sales compensation plan presupposes rewarding salespeople based on how much or little they sell. For example, if a total commission is $1,000 and a sales rep reaches 90% of their quota, they get 90% of the commission, which is $900.
Being quite easy to calculate, this model may be not motivating enough. Say, if a person is okay with 80% of the quota, they will not be driven for selling more.
To ensure you have a right sales-compensation plan at hand, you should take the following steps:
Determining your goals is a key step for any strategy. Setting your sales compensation plan priorities will help you decide how to reward your salespeople in a way that works best for your company. Consider some examples of objectives you may set for your sales compensation plan:
Now that you have defined your goals, you should choose the type of compensation plan you will use for your sales team, which will depend on:
If your plan presupposes a commission, determine when your salespeople will get compensated: when a customer signs a contract, when they send you their first payment, or every time a customer pays. Besides, you should choose a payroll software option to carry out your sales compensation plan.
Determine what you expect of your sales reps so that they will know how they can earn compensation. Remember that quotas must be reasonable, feasible, and yet reflecting the business goals.
As it is, only 24.3% of salespeople exceed their quota, which means the number of top performers is usually lower than the rest of your sales team. Thus, it’s advisable to target average performers while setting quotas to drive their movement several points upwards.
Any business strategy can’t be actionable forever. The same goes for your sales compensation plan. As your sales team grows, and company objectives become more ambitious, it should undergo corresponding changes. However, remember that these changes must always be aligned with your sales reps’ expectations: they should feel motivated and rewarded.
Sales compensation is an important factor in motivating your sales team. This is why choosing a sales compensation model that would be both targeted to your sales reps’ expectations and aligned with your company’s goals is a number one priority if you are pursuing sales growth. What your business will need to do next is to review its plan as long as you change your sales goals or direction.
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