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4 ways to structure your sales compensation plans

By Fernando Gutierrez

Choose the right plan to motivate your sales team

There are many ways you can organize your sales compensation plans. Having a well-defined compensation structure ensures the best fit of resources to overall company objectives. Sales compensation plans structures should encourage transparency and team participation because commissions are all about people and results.

Here’s a list of different compensation plans structures you could use in your sales department. Choose your compensation structure wisely. Carefully plan, develop and implement them.

Straight salary

This type of sales compensation plans gives salespeople an amount in function of the time worked and not necessarily the performance based on the sales volume. What does this mean? There’s no variable compensation. Companies using this structure look for a long-term presence in the market. And, in businesses where each salesperson’s performance is difficult to measure.

Salary plus commission

Sales compensation plans using a salary plus commission structure give their salespeople a base income, and when the sales happen, a commission is paid. This is the most used structure for sales compensation plans, and it is a good way to encourage better performance. A salary plus commission structure is ideal if you want to achieve important short-term goals, your sales reps are involved in extensive cycles, and you want to accomplish precise targets. Check out this piece of information about how to set the perfect salary mix.

Commission only

Sales reps’ earnings under these sales compensation plans structure are made up entirely of variable pay. With a commission only structure, salespeople compensation depends on their performance reflected in sales volume. You should apply this in your sales compensation plans if you are hiring independent sales reps instead of permanent employees. Or, if your objective is to generate short-term revenue at the lowest overhead cost.

Profit margin

If you are a company that needs to maintain a high-profit margin to remain competitive, then you must use this structure in your sales compensation plans. A profit margin structure compensates salespeople based on how the whole company is performing. A profit margin structure lets you incorporate long-term commissions like stock shares and other ways to motivate people like non-monetary incentives.

Before choosing a structure for your sales compensation plans remember to answer the following questions: are you a growing company? Are there job positions you want to pay differently? What are your sales department goals? Sales compensation plans are part of the strategy that will help your business to scale, but you have a clear structure and an efficient way to manage it. A perfect tool to manage your sales compensation plans is Blitz, have accuracy and consistency in your commission tracking and boost performance.

Source

Forbes

Fisher, John G. How to Run Successful Employee Incentive Schemes: Creating Effective Programmes for Improved Performance. 3rd ed., Kogan Page, 2008.

Tags: Commissions

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