How to Calculate Enterprise Sales Commissions

Do you want to create a “win-win” sales compensation plan? Do you want your enterprise resources to focus less on admin tasks and more on sales compensation planning?

AI-powered tools find patterns and track sales compensations accurately.

But what if you don’t have the necessary data? What if you want to reconstruct your compensation plan and all your data is irrelevant?

This post shares the main challenges and solutions of setting sales commissions for an enterprise.

Challenge 1: Updating Complex Sales Compensation plans

Large companies have longer, more complex sales compensation plans. The goal is to make these plans malleable and responsive to quick changes. A secondary goal is to limit the number of annual iterations.

The solution

Consider the advantages and disadvantages of your plan.

1. 1. Zero in on the advantages that your business leaders AND your sales team love.
2. 2. Examine what disadvantages you want to cut.
3. 3. List down your goals for the new sales commission plan
4. 4. Talk to different stakeholders and beneficiaries of the plan. Understand the product/market situation and strategy. Get curious about sales compensation strategies your competitors in the industry use.

Here are few facts to steer you in the right direction:

• Commission-based plans are popular when companies enter a new market or launch a new product. They are simple to manage and also a preference when quota levels are a point of contention within the team. 

A commission-based plan may cause your company to re-balance territories and change sales rep assignments. Would that be beneficial to the goals of your plan? 

• Companies in more mature businesses and markets tend to opt for quota-based plans. It links their targets to business rep’s performance and reduces the redesign of the compensation plan.

Complex and limited quota-based plans can dampen enthusiasm among your sales team. They may even reduce the drive for immediate action, thus slowing down your sales team.

Challenge 2: Finding the right base-to-variable pay mix

After setting total pay, companies must decide the right mix of base (fixed) pay, variable pay, and incentives.

The solution

Consider these factors when deciding your pay mix: 

• From the sales rep’s point of view, a lower fixed pay will push them to work for higher variable pay and incentives. If the fixed pay is too low, you risk demotivating them.
• Move to decide about incentives only after you freeze the decision on base/variable pay mix.

You will need a higher fixed (base) pay if:

• More than one sales rep works on each lead/account
• Your advertising and promotions are performing well
• Your product doesn’t need too much of an effort to sell
• When you have a longer sales cycle
• When sales reps must work more on improving and maintaining long-term relationships

Focus on high variable pay if:

• Your product will need a significantly higher level of effort to sell
• When your company is new or there is a lot of competition in the market
• Your product costs more than that of the competition
• When there are fewer career growth opportunities in the company
• When converting specific prospects will provide a great competitive advantage. For example, the testimonial/endorsement of an industry leader sets you up to get other clients in that market/category.

A thumb rule about incentives is that it is anywhere between 1X to 2X of the variable pay rate. Here’s an example of a sales commission plan using this rule:

• 70% base pay
• 30% variable pay
• 60% incentives (2X of the variable pay)

Blitz makes your sales commission tracking easy

When companies manage their sales compensation strategy with spreadsheets, they ignore small errors.

Spreadsheets have their own downsides:

• They lack visual organization
• Sales reps need hours to learn and create macros.
• They become slow when handling large data sets

These irritants feel small when your team is small. When the team performs well, your business grows and so does your team. These small annoyances become major bottlenecks as the company grows.

Blitz has simplified sales compensation management for managers in mid-market and enterprise companies. Talk to us for a demo today.