There's no one-size-fits-all solution when it comes to sales compensation. However, the right plan can motivate sales teams, resulting in higher revenue and increased customer satisfaction.
Sales compensation is an expense to the company, but it is an investment that guarantees significant returns. They have a significant impact on the success of an organization.
The right compensation plan depends on several factors, such as:
- Business model
- Products you sell or services you provide
- Sales cycle
- Average deal size
- Seasonality
- Current and future market conditions
- Current company revenue and projections
Sales compensation plans should align with your market position
When developing your sales compensation plan, it's essential to consider how it aligns with your market position. An excellent example is an organization offering a product in two different markets.
For instance, a company making dental products may have one sales team in the US and the other in Europe or Asia. In this situation, the company will need two separate plans for each region. Such a strategy will ensure both teams get compensated fairly based on the market and provide a clear path for each group to improve performance.
The right plan will differ depending on your target market and model
Before you can start building a sales compensation plan, you need to consider the following questions:
- What is your target market?
- How will your salespeople make money? Your answer should include how many units they need to sell and their profit margin.
- Do you have any special requirements for rewards? This requirement may include, for example, showing extra commitment toward a longer-than-usual deal or working in collaboration with other sales personnel to close a complex deal.
Answers to these questions will help you build a sales plan that incentivizes closing deals and fosters relationship building.
Automation plays an important role
Automation plays a critical role in managing your sales compensation plan. For example, automation can reduce the time needed to manage sales compensation and help you tailor compensation plans for different markets, sales models, and personnel.
Automation offsets the burden of complex calculations from the team’s shoulders, thus allowing them to concentrate on deals.
1. Calculate the ROI of different options
To make the best decision, you need to calculate each option's return on investment (ROI). ROI measures how much your company expects to earn from the activity against its total costs.
2. Find out what works for your business
Once you have determined your ideal sales compensation plan, it's time to put it into practice. The phrase "test and learn" (borrowed from software development) also applies to sales compensation plans. The best way to determine if a new approach will work is by trying it out and measuring its results against your current plan.
Make sure that you have metrics in place for tracking performance. If things don't work out as planned, be prepared with an alternative plan that addresses any issues the test run reveals (and make sure everyone involved knows this).
Conclusion
There’s no magic formula for creating the perfect sales compensation plan. It requires trial and error. Follow these guidelines and consider what we have outlined to develop a plan that increases ROI by motivating your sales reps to sell more.
Blitz empowers organizations and sales managers and directors to build the right commission plans for fast-changing business goals. If you’re planning to supercharge your commission plans and your sales planning strategies, visit our blog.