Compensation is an important factor in attracting and retaining top talent on your sales team. Along with other perks and incentives, you need to give away the best compensation program so that your team sticks to your company long-term. That’s why it is most important to get your sales compensation program right.
However, it can get a bit tricky to determine the sales compensation program. While team incentives are gaining popularity among companies, you might feel overwhelmed when selecting the best one for your team. In this article, we will talk about how different commission programs work and help you choose the best option.
Before that, let’s understand what sales compensation is. According to HubSpot, “Sales compensation is the amount of money a salesperson is paid per year. It typically includes a base salary, commission, and additional monetary incentives to encourage salespeople to meet or exceed their quota. A sales compensation program should encourage high performance in a sales team and delineate increasing salaries for higher-level sales reps and managers.”
A sales compensation plan is a structured incentive plan that helps sales representatives earn based on their performance. A well-planned sales compensation plan can motivate teams and individuals to perform better and help achieve the organizational goal.
Team vs. the individual sales compensation program
Before deciding which compensation program to choose, individual or team, you need to consider “the influence principal.”
According to “The influence principal,” it is not just the kind of work an employee does but how their individually measurable success performance is.
As an employee, one can work in a team or as an individual contributor. Still, if the employee’s measurable performance captures at least 80% of her or his contributions towards the company’s profit, the sales compensation plan would focus on the employee’s performance.
On the other hand, if the collective performance brings in profitability for the company and it is hard to measure one person’s success, the team would be compensated. A team-based approach is a better option in this case.
Pros of an Individual Plan
- It drives individuals to bring out their best
- It creates a culture of sales
- It helps management to easily differentiate the top performers from the rest.
Cons of an Individual Plan
Personal rivalry for sales can create a toxic culture
It can create fiefdoms
Pros of Team-Based Incentives
- Encourage team-based approach
- All sales team members work together to help the clients
- There is minimal scope for a personal rivalry between team members
Cons of Team-Based Incentives
It rewards team members equally, no matter who worked hard and who didn't work so hard
Top performers may feel demotivated, resulting in attrition
Which one is the right plan for your team
Now that you know how the plans work and their advantages and disadvantages, you might get a fair idea of which one to choose for your team. However, it is not always a straightaway answer. Some roles need individuals to work both as a team and as individuals.
Measuring the success of such roles can be a bit tricky. You can measure the individual performance and the entire team for such roles.
For example, people in business development (BD) need to pass a deal to the sales representative to close it.
So, you can measure how many leads the BD person passes on to the sales rep. You may also check how many deals are concluded based on the prospects brought in by the BD team.
No matter which sales compensation plan you choose, Blitz is an automated commission management platform that tracks sales and can help you build the right compensation plan for your sales team.