A sales compensation plan is the combination of base salary, commission, and incentives that constitute a sales representative’s earnings. They are designed in such a way as to drive performance and increase revenue. There are many different ways to structure a sales compensation plan to suit different organizational and employee needs. They should be designed and tailored based on a rep’s role within the sales team, the length of the sales cycle, the types of sales engagements and the rep’s level of seniority.
Sales compensation plans are important. They are key to encouraging the positive behaviours in your staff that are necessary to achieve your overall organizational goals and results.
Structuring Sales Compensation Plans
As mentioned above, there is no one-size-fits-all structure when it comes to sales compensation. As well as considering the factors specific to individual reps, business owners will also need to consider aspects such as industry, company size, territories, and more.
Think carefully about your the structure of your sales compensation plan since the best quality sales reps will be attracted by plans which reward high performance admirably, thus keeping turnover low. If your plan rewards top and underperforming reps at the same rate, not only will your plan be unsuccessful in motivating your team, it may also lead to high turnover and the increased associated costs.
Since straight salary plans aren’t very common, they won’t be discussed here, but they do have a place in some industries where direct sales may be prohibited.
Different Ways to Structure Sales Compensation Plans
As you can see, it is easy to tweak each plan and create different combinations. The important thing to remember is that since the purpose of a sales compensation plan is to motivate sales reps to perform to the best of their ability, a balance must be struck between aggressive targets and an allowance for great performance to translate to great earning potential.
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