A good sales compensation plan is essential to the success of your organisation. A well-designed sales compensation plan will motivate your team to succeed. It is key to recruiting, hiring, and retaining top sales talent. However, finding a sales compensation scheme that will encourage performance while benefiting your bottom line is not always easy.
Here are some of the things you should take into consideration when trying to set up a fair and competitive sales compensation plan for your team.
Collect Detailed Data.
The most important thing you need to determine the right sales compensation plan for your business is the data on which it will be based. Data allows you to see how past performance has been and what incentives have worked well. Did bonus plans, sales commission structures or a pay mix work well? What deals motivated people? And which sales compensation plants yielded the most revenue?
Another data set required for this analysis is what the competition is doing. Benchmark your compensation plan against industry pay data. If your staff can earn more money elsewhere, they may leave.
Plan with People in Mind.
Don’t assume everyone should be working on a commission basis. In most sales jobs, there must be a base salary. And try to avoid draw against commissions as well. The advance at the start of the pay period may let them cover their current bills, but if they don’t hit quota, they’ll owe the employer money. Talk about a recipe for resentment.
In a worst-case scenario, the salesperson will end up in debt to an employer, and it may not be their fault if the industry as a whole is on the decline or the latest product is a dud. Bear in mind that a dip in sales might be because of market conditions or because a product fails to sell well.
Consider the behaviours you’ll want the plan to incentivise as well. If you want to see more new business than repeat purchases, then the commission on net new sales should be higher. If you want to sell more warranties or service plans, offer a commission for each referral. And consider shared commissions too. If your salespeople work in a team selling environment, these will push your salespeople to work together instead of against each other.
And make sure to pay commissions quickly in order to maximise the link between behaviour and reward. However, you can institute checks and balances to minimise the potential for fraud.
Bring Together the Right People to Create the Master Plan.
The sales compensation plan shouldn’t be designed by the head of sales. Instead, it needs to involve multiple relevant stakeholders from across the organisation. You’ll need representatives from sales, finance, marketing, and human resources.
Compensation administrators must be present to ensure that any plan you create can be executed. If it is too hard to execute, come up with something simpler. Legal should review any plan, but it is optional as to whether or not they’re on the planning team. You may also want to bring in experts like Nazca Services who have global expertise in sales development. They can analyse data on your teams’ performance and create a sales compensation plan that maximises performance. They can also provide sales training to improve your sales team’s efficiency as well.
Once you’ve drafted a proposed sales compensation plan, you should have your sales managers and best reps review the plan and give their feedback. They may be able to point out some issues that your team may have missed and give their opinion on the plan in general.
Optimize the Sales Compensation Plan.
Picking the right commission rate is tricky. It could be based on a percentage of total revenue or net profit. You may expect incentives to work one way and the data shows the trend going another. This is why you must collect data throughout the implementation process and monitor it consistently. Then you have the information you need to adjust the sales commission plan.
One baseline for a plan working correctly is that your top salespeople earn as much in commissions as they do in salary. You may have to alter sales territories to devote adequate resources to each area and ensure each team member has an equal opportunity to reach quota. And you may need to benchmark your existing sales plan if it is working against industry standards.
Make It Official.
Once the plan is approved, it needs to be rolled out and communicated to the team. You may need to train people on how to track their data or monitor their performance. No one should be surprised by what they receive in pay each pay period. Explain the logic of decisions made and be open to feedback on how things go after it is in place.
If you pay too little, you’ll lose your best performers. Pay too much, and you’re wasting money and will lose money over the long run. Take the time to determine what is right for your team and your business to set up a competitive sales compensation plan.