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Topics Covered: <a href='/resources/search/?query=Sales Management'>Sales Management</a>
Finance & Legal
David Johnston

Your company’s sales compensation plan is of vital importance. How you pay and reward your salespeople makes a huge difference in the success of your recruitment and retention efforts... But more importantly, in your company’s ability to meet targets and build revenue. Having the right sales compensation plan will have a gigantic impact on your bottom line. You may have heard phrase “strategic sales compensation plan” -- but what does it actually mean? What makes a sales compensation plan strategic?

The short answer is that a sales compensation can only be strategic if it supports your business goals and your sales strategies. It must encourage and reinforce the right kind of behaviors in your reps. Fundamentally, it must ensure that they get paid for delivering the results that are important to your business.

Read on to discover in more detail what makes a sales compensation plan strategic.

Understand Your Business Sales Strategy

Before evaluating your sales compensation plan’s efficacy, you must first understand your business’ sales strategy. If you don’t have a documented sales strategy in place, well, you need to start there and quick! Your business’ sales strategy should explain what your business case is and what you are trying to achieve. It should also encompass your target market, your selling methods, your competitive difference and the trends in the market. Only once you have a clear idea of these things will you be able to analyse whether your sales compensation plan is aligned.

Analyse Your Performance Measures

Once you understand your business’ sales strategy, you can begin to assess how strategic your sales compensation plan is. You will need to analyse how well your performance measures actually guide your sales team to the right behaviours and results. Tailor the benchmarks, sales goals and performance objectives you use to  motivate your reps to achieve success in the specific target market in which you operate. In addition, are your performance measures within the “line-of-sight” that your salespeople can influence the expected results? If they can see the link between the focus of their activities and the desired business outcome, then your plans strategic value increases.

Check Your Compensation Formula

Finally, you need to test how you have structured your sales compensation formula. Most companies opt for a middle ground when it comes to the balance between straight salary and full commission. Whatever you choose, check that your formula takes into account the role of the salesperson in your business, the kind of selling they will be doing, your business' sales cycle and the kind of salesperson that you want to attract. For example, if your focus is on bringing in new accounts, your compensation might be weighted more to commission than straight salary as you are looking for more of a hunter than a farmer. A higher base with a more  moderate incentive opportunity may be more appropriate for an Account Manager role, where the strategic activities necessitate patience, process and opportunity analysis rather than a constant closing mentality.

Final Thoughts

There's no one size fits all sales compensation plan.  To be effective, the sales compensation plan needs to communicate to salespeople what you value and want to pay them for delivering and also where to focus their time and efforts. Be strategic. Think about what elements of your business that the sales compensation needs to support and ensure that your sales reps' pay and rewards drive your business to where you need it to be.

About the author: David Johnston is the founder and CEO of Sales Resource Group Inc., a leading consulting company with extensive experience in the design and development of sales compensation programs for organizations across North America and around the world.

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