There is no doubt that commission or bonus-focused compensation plans offer wonderful upside for growth and allow managers and business owners to truly leverage their people — all while those people are given ample opportunity to make significantly more money than if their income was largely dictated by a fixed salary figure. And no matter which approach you use, success depends on how good your reward your employees. Your sales management team must understand your company's overall goals and you should understand the commission structure to align with those goals. In short, sales commission or sales bonus plans should be not just a tactical focus for your organization, but a strategic one as well.
In that vein, you should appreciate that although commission and bonus plans are common sales incentive approaches, several aspects of a firm’s selling process and environment are always the main differentiators between commission and bonus plans. And these aspects include:
This is based on sales team causality, selling cycles, sales person effort and carryover sales. Structuring commission and bonus plans through the selling process characteristics is a great way to measure how determined your sales teams is and you’ll understand if they have the necessary skills and effort. For example, for commission plans, the salesforce causality is high, sales success is based on individual effort, selling cycles remain short and carryover sales resulting from past salesforce required to appear low. But for bonus plans, the above mentioned aspects will be considered differently as salesforce causality is moderate, selling cycles taken a bit longer, success based on team effort and the carryover should be high without extra skill or effort.
This is helps a company to structure commission or bonus plans based on not only the efforts of the sales team, but also on whatever extra they do to achieve some of the company’s goals. According to most companies, this where sales people are asked to engage to put more effort as the company get more into the management. For this category, a great difference is observed where bonus plans may require some salespeople to engage in non-selling duties as opposed to commission plans. For example, for commission plans, the sale management will not close control salesforce effort and sales territories remain equitable, as opposed to bonus plans where the management needs to control salesforce effort and sales territories may not be equitable.
Demand predictability is also a very important aspect when structuring a commission or bonus plan because it requires a good survey of the market hence requiring a company to set the right goal for the sales department. For commission plans the market is volatile and there is no data for coming up with accurate goals, as opposed to bonus plan where the data is available and the market must be considered stable.
Creating effective sales commission or bonus plans is hard work, but the effort typically pays off in both improved sales performance and achievement of your corporate goals.