How to create an effective sales compensation plan
Money is the primary motivator for many salespeople to reach their goals, and how you structure your sales compensation plays into their success. Creating a plan that rewards team members in a way that is both fair and attainable is key to increasing employee engagement, retention and ultimately driving up sales. Let’s dive into sales compensation and the key factors that go into creating an effective plan for your organization.
What is sales compensation?
Sales compensation is both similar and different than how you pay other employees within your organization. In one way, it is the amount of money you pay a salesperson. But, in contrast to how you pay other positions, it typically includes a base salary, plus some type of commission and/or other variable incentives. A comprehensive sales compensation plan motivates employees to hit quota, increases engagement, decreases turnover and ultimately drives overall business success.
Key factors to an effective sales compensation plan
Designing compensation that is both enticing (and motivating) to your employees and fits within the resource constraints of your organization can sometimes feel like a balancing act. Here are three key factors to consider when creating or updating your plan:
- Organizational goals – What are the goals of your organization and how does sales play into these? Compensation plans should align with the objectives you have set for the company. This will not only keep everyone on course, but also contribute to the culture and behavior you want to see from your team. Having clearly defined organizational goals also helps the sales team understand how their performance fits into the bigger picture, which helps keep them focused and motivated.
- Balance and achievability – There are many types of plans out there, so make sure to design one that makes the most sense for your organization. Your plan should be easy to understand, have components that are achievable, and be tailored to each sales position, where possible. If you make reaching quotas and getting commissions too hard, you can expect high turnover and low morale.
- Top-down buy-in – When creating or updating your sales compensation program, it is important to have input and buy-in from across the organization, especially those at the top. Establishing a sales compensation design team that includes leadership, as well as representatives from the sales team, HR and finance teams will create a broader understanding of how your plan aligns with organizational goals, and the impact the sales team has on company success.
When to bring in professional help
There are many types of compensation plans to choose from: salary + commission, commission only, salary + bonus, absolute commission, relative commission, gross margin commission, and more. Given all the options, it is easy to get overwhelmed when trying to determine which one will work best for your organization.
If you are feeling unsure about where to start or are finding your current sales compensation plan isn’t working as planned, then it’s a good time to bring in outside help.
At Compensation Works, we are experienced in developing sales compensation plans that motivate employees and deliver results. Through our nine-step discovery and design process, we clarify business objectives, evaluate the effectiveness of your current program, streamline your team comp structure, and improve accountability.
Are you ready to take your sales compensation to the next level?
Contact us today to schedule a consultation.