COMPENSATION PLANS - SALES
“How do I get to $100K in 12-18 months?”
HOW TO SET UP A SALES COMPENSATION
PLAN: THE ELEMENTS OF THE PLAN
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A sales compensation plan is a way to put your marketing
strategy into operation.
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Given the impact that sales compensation plans can have on
growth, almost every company with a sales force should take
a more strategic approach to designing their incentives plan.
Fully understanding both the key drivers of successful sales
incentive programs and the ways to optimize them can be
complex, and plan specifics can vary widely.
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There are a few key factors that you should consider when
designing and administering an effective sales incentive
program.
ELEMENTS OF A COMPENSATION PLAN
Writing the Sales Compensation Plan
Virtually all sales compensation plans are written and documented. The sales compensation plan should be available
and distributed to the sales force. The front line manager should use it as a tool to communicate the sales strategy and
goals and motivate the sales staff to sell. Here are some of the essential elements to include:
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Strategy
The business' sales strategy, what the business case is, and what the business is trying to achieve.
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Performance measures
Spell out benchmarks and performance measures to help guide the sales force in terms of their focus.
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Payout formula
This is perhaps the most essential component that spells out to your staff what is in it for them. The payout formula
lays out how they will be paid in terms of straight compensation or commission for sales.
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Governance
Detail how you will resolve questions or conflicts over sales compensation that are not covered in the plan and may
arise.
DEVELOP MEANINGFUL SALES GOALS
AND PERFORMANCE OBJECTIVES
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Tie individual performance goals to the company growth
objectives
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Design incentives that motivates and rewards productive sales
behavior
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Take the guesswork out of the definition of 'successful selling
performance' reduces ambiguity, and provides clear
marching orders to your sales troops
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Act as a supporter of each sales person … not in competition
STRAIGHT SALARY PLAN
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This sales compensation plan works only with organizations that
have assured sales volumes. The salary compensation plan
defines different salary structures based on the employees
marketing skills, qualifications and responsibilities. It also has
provisions for salary increments and the criteria for the same.
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Salary increments can be periodic or flexible depending on
the organization’s policies and the same is clearly mentioned
in the plan. This plan however, is not recommended for volatile
markets with unpredictable sales volumes.
COMMISSION-ONLY PLAN
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This plan does not accommodate any other source of
compensation for employees apart from commission on sold items.
Many organizations prefer this mode of offering commission on sales
to compensate their employees, since compensation can be
directly correlated with the performance of an employee.
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Commission-only plans mention the different commission levels with
respect to sales volume or time. (For example 1% commission on sale
of first 100 items, 1.5% commission on the sale of next 100 items or 1%
commission for 100 items in month, 1.5% commission for 150 items in
a month).
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Car dealers, furniture stores, and other ‘same day’ purchases are
examples of businesses who may have a commission-only structure.
SALARY PLUS COMMISSION PLAN
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This plan came into existence due to a major shortcoming of
the commission-only plan. The commission-only plan is not of
much benefit to a new employee who needs time to settle
into the position. Therefore, to compensate such employee
during this initial period, he is offered a minimum fixed salary for
a period of time and the commission-only plan becomes
effective thereafter.
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This plan is common for long-term cycle sales that may take
several months to close or that are sold according to the
budget cycle of the customer or client.
BONUS PLAN
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This sales compensation plan cannot be used as a standalone plan
and must be combined with any one of the three plans discussed
above. Adding a bonus component to the sales compensation plan
can bring a significant change in the manner in which employees
are compensated.
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This plan includes the criteria for awarding bonuses and the time of
payment, which is generally the year end. In case an employee is
eligible to earn more than one bonus, the cumulative bonus
calculation is also included in the plan. Bonus components are
always paid as a fixed sum per attained objective and not as
percentage of sales
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Bonus plans are sometimes based on ‘corporate’ profitability rather
than employee performance.
NON-MONETARY PLANS
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This plan works similar to the bonus plan with the only difference
being that sales incentives are always non-monetary, such as gifts
and other items that may be useful in improving the employee’s
lifestyle.
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One company in our profession offered the choice of a Lazy Boy
chair or TV as part of an annual bonus.
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The use of a company car is a common perk for a successful sales
person.
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A comprehensive sales compensation plan can be developed by
having a good balance of all the four components: salary,
commission bonus and sales incentive in a single plan. Lastly, the
sales compensation plan will serve its true purpose only if it is easy to
comprehend and execute at all levels.
AUDIENCE EXAMPLES
Richard Serby
GeoSearch, Inc.
719-575-9100
[email protected]
www.geosearch.com