Attracting and retaining talented salespeople is central to running a profitable business, but it won’t happen on its own. After all, truly talented sales reps are not often without options for employment. If a position with your company doesn’t offer what they’re looking for, they’ll move on. Encouraging top-performing sales professionals to work for your business requires careful planning.
This is where the right sales compensation strategy comes into play. Finding the balance between what’s right for your company and what will really motivate your team to perform (and continue to perform) is one of the keys to lasting success.
Sales Compensation Plans: The Basics
Sales compensation is essentially any financial compensation that sales reps receive for making sales. There are plenty of different types of sales compensation plans, and they vary with how they pay for performance. A common example is a plan that offers a base salary, commissions for sales, and some additional financial incentives.
Why are they important?
Your sales compensation strategy does several things, as it:
- promotes productive behavior in your sales team
- drives performance
- increases revenue
- sets performance expectations
It’s necessary to have the right compensation plan in getting the most out of your sales department.
Things to Consider
The same compensation plan that works for your competitor won’t necessarily work for your team. This equally applies to the different sales roles within your company. There are a number of important factors to consider that take into account the unique situation of your business.
Things like budget, company culture, length of the sales cycle and the cost of living in your area will all influence what makes the best compensation plan for your business.
The questions you need to consider for the right plan of action are:
- What roles do you have within your sales team and how does your compensation for those roles drive the desired behavior and ultimately obtain results?
- If the salesperson wins financially, do you also equally win?
- Do you have the right balance between base and incentive / commission?
Examples of Sales Compensation Plans
A salary-only compensation plan has the benefit of making it easy to calculate salary expenses. With this plan, your sales personnel earn a fixed amount regardless of how much or how little they sell. While this approach may be tempting for how straightforward it is, it has its drawbacks.
With this plan, there’s little incentive for your sales reps to sell more than the quota. It may also inspire your top-performers to seek a position with a different company that will offer compensation for higher sales.
There are also many sales reps that simply thrive in an environment that fosters healthy competition. A salary-only compensation plan doesn’t offer this competitive outlet.
On the flip side of salary-only is commission-only. With this type of commission plan, your employees forgo a salary in favor of commissions for the sales they make. In this scenario, zero sales means zero earnings for a sales rep.
One advantage of this strategy is that it’s less risky for the business. You won’t ever have to pay sales reps that aren’t generating revenue. It also motivates your sales team to make as many sales as possible so that they can earn as much as possible.
A downside to this model is that it can make it difficult to predict expenses. The lack of economic security is another aspect that many salespeople will find negative. Often, commission only compensation plans drive sales reps to make poor decisions that negatively affect themselves, your business, and your customers.
Base Salary Plus Commission and/or Bonuses
This is the combination of the above two plans and is a much more popular option. It involves providing your sales force with a base salary in addition to the opportunity to make commissions or other incentive compensation. This is often seen as the best of both worlds; it provides employees with a steady income as well as a monetary incentive to make more sales.
For many businesses, a version of this is the right compensation plan. It takes out some of the uncertainty associated with only paying your employees a commission while still providing motivation.
The base salary also means that the business can potentially get more out of their sales team. Requiring your sales reps to perform any non-selling tasks really only makes sense if they’re receiving some kind of base salary.
Building A Compensation Plan
The sales compensation strategy that your company implements will affect many aspects of your business. More than just your sales department, the compensation plan will also affect the finance and HR departments. It’s wise to get key players from each of these involved in the planning process.
In addition, developing one compensation plan to fit every sales role is unrealistic. Your sales managers, for example, should probably receive different pay mixes than your less experienced sales reps. Incentive planning should be tailored to the sales role and the part it plays in your sales process.
How you compensate your sales force should also reflect your company culture. This is one of the most individualized aspects of the compensation plan design and has a large influence on how well you’ll retain your best talent. Paying your sales professionals fairly in comparison to competitors is extremely important when it comes to attracting, motivating, and holding onto your best sales reps.
The start of the new year is a perfect time to take another look at the way your business operates.
Is your sales strategy effective and strong enough to keep your best players?
Are you meeting sales goals?
For many companies, it’s a time for updating compensation strategies.
Developing the right sales compensation strategy is of the best ways to inspire your sales team and drive them to outperform the competition. It’s also how you can make sure that your company’s goals and sales behaviors are aligned.
This obviously isn’t a decision to take lightly, and frankly, sometimes it’s best to seek professional guidance. An outside perspective is often just what you need to make the best-informed decisions.
Now is a great time to update your sales compensation strategy. Elevate your business by taking the time to find the right one.
For more helpful information on sales compensation, read these recent posts:
We Can Help with a Sales Compensation Strategy
To expedite meeting and exceeding your sales goals, it might be time to call in reinforcements. Schedule your free consultation here to find out how we help sales teams break sales records.