How to Design a Sales Compensation Plan 1

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How to Design a Sales Compensation Plan That Drives Performance

You need to create a sales incentive package as a sales leader that aligns sales activity and quotas with revenue objectives. To attain it, the sales team needs to know what their quota is and what metrics they need to conduct.

Remember, when they are financially rewarded for their diligent work, salespeople are inspired to succeed. They need to know how money is made.

Your sales incentive package needs to detail what is required of them in order to inspire your sales reps and drive results.

Here are 7 things you need to factor into your sales compensation plan:

1. One Size Does Not Fit All

Based on the standard of the job as well as the business model, the sales compensation policies will differ.

When someone asks how a sales compensation package should be structured… there’s not ONE solution. It will be specific to your business model, products, and services to your sales compensation package. You need to understand at what level of development you are, and the sort of salesperson you need.

When designing a sales compensation package that works, you need to consider 2 significant things:

1. How are you attracting clients?

2. How do you keep clients?

When it comes to compensating the sales staff from a new business and an account renewal perspective, these are crucial questions to answer.

2. Average Deal Size and Cost of Sale

If you don’t know the scale of your average contract, then you will fail to build a system for commissions. You need to know the overall size of the contract for your product or service and the cost of the transaction… What is the payout percentage? If your average contract is $20k, how do you expect to pay from the product development agent to the account manager or sales engineer who was involved in closing the deal with anyone involved in the deal?

* It is also important to remember that the benefit arrangements should be kept as straightforward and transparent as possible.

3. Average Sales Cycle

Another important thing to take into account is the average sales period… when are the deals closed and when are those deals paid out?

A failed sales incentive scheme is one of the key causes of employee turnover. A contributing factor to a short or long sales period could be the average deal size. Your sales agents want to know what they’re going to be paid on transactions they have closed.

Your sales reps need to know when they will earn their commissions if your sales size is big and your sales period is several months.

4. Setting an Attainable Quota

It’s a huge one here. The quota should be consistent with those priorities as you set out sales targets. You should be observable and realistic in terms of how to recruit salespeople. It doesn’t mean that every sales rep can be 100 percent or more, but to motivate the sales reps, the quota needs to be reasonable. If every rep does not meet or get close to the quota, it can de-motivate the team, and eventually impact the growth of revenue.

5. Base Salary and Commission Structure

For base salary alone, no sales professional should be in the field. Their committees should be their inspiration. That being said, to help your sales reps, particularly in their first year at a new company, a simple salary is typically recommended.

A common pattern in the arrangement of base and commission pay is 50/50, meaning if the base salary of an Inside Sales Rep is $60k, then they can expect to see a $120k OTE.

* Something to consider: do you cap commission profits for your sales reps?

6. Added Bonus (Kickers, Spiffs, President’s Club)

If you want to further promote the success of your sales staff, consider incorporating any distinct incentives in their compensation package. Keep monthly spiffs rewarding your best performers in order to build some healthy team rivalry to drive results. These can include gift cards, an additional day off, or a new smartphone.

Do you have accelerators when the sales team is exceeding their monthly and quarterly numbers? Will paying out marginally raise their percentage?

Do you reward the top sales performers with President’s Club, an all-inclusive and paid holiday travel that was 120+ percent of the quota?

To push the sales team and outcomes, these are just a few ideas.

7. Pay-to-Play

A big mistake is to believe that your work is something everybody wants. It’s a competition for job seekers. Applicants have alternatives and are selectively looking for the best fit. Understand that money isn’t anything, but it’s something, not just when top sales performers are attracted, but often retained.

Be able to afford the sales talent caliber you need. Your multiple sales positions would have different criteria for salaries. Have flexibility around compensation and encourage sales representatives to increase their revenue at your company.

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