Many organizations develop incentives on a one-off basis to address individual problems. Upgrade your software to expand the capabilities of your compensation plan. Compensation is directly related to performance, lowering the risk for businesses. However, if the rep is incredibly involved and has experienced complications to get the customer to say yes, they deserve a heftier commission. Others will base commission on the following parameters: If you have a simple sales process that doesnt include the rep having a big impact on the buying decision, their commission will be smaller. Incentives can be structured in multiple ways, including straight commissions, bonuses, prizes, spiffs, awards, and recognition. When setting goals, its always best to have primary objectives, with secondary ones attached. Incentive compensation is a form of variable compensation in which a salespersons (or other employees) earnings are directly tied to the amount of product they sell, the success of their team, or the organizations success. It promotes a company culture driven by performance and accountability for your own results. Manager reports. The top down approach involves a business setting a goal based on market research and revenue expectations, and then assigning sales quotas that will support it. Its equally important that organizations develop protocols for creating different reports for different stakeholders. Common problems may include the absence of an effective governance model, outdated operational systems, and gaps in the end-to-end process. On the other hand, if you want to bring in new customers, absolute commission will help you get there. For businesses, it offers a little more structure to their expense projections because there isnt as much flexibility as to how much people can earn. The gross margin commission plan shifts the focus from revenue to actual profit. Great reporting offers different stakeholders varying levels of granularity and includes drill-down and -up capabilities. Soon enough, people will expect to be given a discount and wont buy if they arent given the same reduced cost. If a business compensation plan has high variable pay and low base pay, its considered highly leveraged. In many companies, managing the compensation plan is an exercise in fighting fires: so many issues arise that simply keeping up with resolving them is challenging. Find out what other companies in your area compensate their employees with similar positions. Also, dont forget it needs to fit in your budget. To optimize individual salespeoples earnings and advance a companys sales goals, incentive compensation plans must be developed using cross-functional data. Here are some tips for making that happen. Create a breakdown of the tiered positions and designate on-target earnings for each. For example, if a sales rep hits 75% of their quota, they will get 75% of their commission. If you were a sales rep and you made as much as you possibly could, would you still be motivated to sell? Its the most common pay structure for sales teams. Freshen up on these 81 sales terms for a seamless compensation chat. Typically, commission is given in addition to a salary. To help, weve put together an introduction to incentive compensation. Gross margin is the actual amount of money a business obtains from a sale after the cost of goods sold is taken into account. What if modeling enables plan creators to consider the effects of potential changes before rolling them out to the sales team. A relative-commission plan pays reps based on their performance against their quota, in addition to their salary. With your goals and structure in place, you need to gather the right tools that will help you compensate employees in a consistent, accurate, and timely manner. Check it out and get in touch! Over time, your business structure, the ability of reps, and competitors in the industry are going to change. Theres a lot of pressure on sales managers to set the right quota for each rep. The purpose of having a sales compensation plan is to set the standard of performance for sales reps that will result in them being well compensated. After you have the on-target earnings decided and approved, you can further divide it into base and variable pay. Take cost of living in your geographic location, their experience and education, and the industry into account. Were always looking for experts to contribute to our Learning Hub in a variety of ways. Their research also found that in nearly half of organizations, corporate leadershipe.g., the CEO, COO, or Presidentis responsible for approving the plan structure. According to Rachel Parrinello, Principal for Sales Compensation Practice at the Alexander Group, the following steps are necessary for keeping an incentive compensation plan healthy throughout the year: Reporting: To ensure that plans remain effective, companies must produce reports throughout the year. (she/her/hers). Theres a universal love and anticipation for getting paid, but payday for sales reps can look different depending on their business sales compensation plan. At the end of the day, Beths sale ($4,000 in profit) is valued higher than Matts ($3,500 in profit). They then gather that the average revenue per account is $1,000. When sales leaders and frontline sales reps have access to real-time performance data, plans can quickly be adjusted to meet the business goals. A companys incentive compensation plans must align to corporate goals but maintaining this alignment can be difficult. With that compensation plan structure in mind, you need to set on-target earnings for each position. Good communication comes in many formats, including live presentations, FAQ documents, and online resources like training or how-to videos. The best way to do this is with payroll software. A sales compensation plan is the strategy that businesses use to pay sales reps and drive their performance in a way that will help the business become more profitable. Simplifies expenses and offers sales reps consistent pay. For example, a sales rep might make a $40,000 base salary and then receive a $12,000 bonus if they sell a predetermined amount. So with relative-commission, the more someone sells, the amount of commission they receive will be proportionate to that amount. Other functions such as human resources, finance, or an interdisciplinary mix may own the sales compensation plans depending on the company and industry. Subscribe to keep your fingers on the tech pulse. Too much commission can cause unpredictability in salary expenses, but on-target earnings mostly made up of base pay wont motivate reps to go above and beyond a certain point. Sales managers can alter milestones to switch the focus of sales reps to prioritize certain goals. Nearly 49% of organizations responded that sales operations handle the program management responsibility for the compensation plan, including responding to questions from sales managers and tracking and reporting on program issues. Employers may offer bonuses tied to successful upselling to existing customers. An incentive management platform should supply this and other business intelligence, including summary reports and historical audits. This pay structure allows companies to manipulate the focus of sales reps. Why have variable pay when you can just lump it all together, you ask? Over time, this compensation plan offers predictability in terms of expenses for the business and extra incentive for your reps to close a certain amount of deals within a certain time period. Its finally time to take action. Incentive software must automate complex computations, improve the speed and accuracy of compensation calculations, and reclaim time for value-added activities. Mid-year adjustments to incentive plans can be extremely frustrating for sales reps. As great as it sounds, payday cant be every day. For example, plans can be developed to motivate different behaviors in different regions, different products, or different levels of sales performance. However, the gross margin commission plan would analyze cost before doling out rewards. A lot of businesses will use a tiered commission rate, where reps enter a different commission range if they make a certain number of sales/generate a certain amount of profit. Based on experience, responsibilities, and current level of customer interaction, each role will most likely be compensated differently. Based on that data, a quota of $5,000 in revenue is set for each sales rep. Because there are three sales reps on the team, a goal of $15,000 in revenue is set for the month. When presenting this to your team, it might sound like this: You will be paid $___ for every ___.. In her free time, you can find her doing a crossword puzzle, listening to cover bands, or eating fish tacos. 
Communication also means surveying salespeople after the yearly plan rollout to gather their feedback so that each successive rollout becomes smoother. With those roles broken down and different levels designated, choose a type of compensation plan. A Sales Compensation Plan That Will Inspire and Reward Reps, Tips for creating a sales compensation plan, What It Takes to Become a Great Sales Manager (+Salary), 5 Ways to Tailor Compensation to Increase Employee Retention, IT Executive Compensation Expectations During COVID-19 [Infographic]. Personally, I would take it easy. This compensation plan incentivizes reps to surpass their quota, meaning it can get expensive for businesses. They must be managed to assess the impact of potential changes on the rest of the business. The base salary plus bonus compensation plan includes a salary and a bonus. Best-in-class companies convene steering committees throughout the year. The sales from that territory are added up, and all the commissions are split equally among all of the sales professionals working within it. An absolute-commission plan lays out specific milestones thatll result in a sales rep being paid a certain amount of money. The thought that a sales rep can technically make an unlimited amount of money might initially be a scary thought to companies. Francine Richards is a licensed multi-state insurance agent with years of human resources and insurance industry experience. To effectively manage incentive plans to drive sales behavior, solutions should include these key features: What-if scenario modeling. The more data you can gather, the more informed your quota is, and the better it will be. Either way, theyll make the same amount. World at Work: 4 Steps for Designing an Effective Account Manager Incentive Plan, William & Mary College: Marketing Career Paths, Standard Job Description of a Boutique Sales Associate. A tricky aspect of relative-commission plans for managers is setting quotas for sales reps. You need to take experience, role, territory, and available opportunities into account when setting quotas, and doing so isnt easy. However, the only way reps can earn a big commission is to sell a lot and surpass their quota, which also translates to more revenue streams for the business. In an ideal state, comp plans are an adaptable, living, breathing entity. First, you take a look at the different positions your sales team is comprised of. In over 60% of organizations, either finance or sales operations bear responsibility for administering the program and performing calculations. Account managers may have responsibility for bringing on new customers. Here are some examples of what your primary and secondary goals might look like: Establishing sales goals and objectives will help you create incentives and rewards for reps. A sales quota is a time-bound target for a sales rep, team, or territory. The framework of a sales compensation plan will vary from business to business. Motivates sales reps to sell as much as possible. For example, these five types of reports may be necessary: Compensation registers. If you do end up offering a sales incentive plan in addition to a standard compensation plan, make sure it applies to the entire team. It can hurt your profit margin, and create a reputation that your reps are always offering discounts. Revenue segments: Incentive payouts are often a companys most significant expenditure, which is why its crucial to forecast them correctly. Its difficult to be fair, and depending on the milestones set, reps might lose sight of the companys overall mission. Commission is only a percentage. Aspects of a sales compensation plan include details like base salaries, commissions, and incentives. It is also crucial that stakeholders throughout the company work with the same data, which helps maintain alignment. A common concern and problem of using the territory volume commission plan is when some people arent carrying their own weight. Cut through the noise and dive deep on a specific topic with one of our curated content hubs. Make sure your reps are pleased with their earnings and that the plan contributes to the business overarching goals. The base salary plus commission compensation plan is a sweet spot for sales reps. Performance management and rewards: This should include but isnt limited to incentive compensation, accruals, crediting, and a range of incentivizing strategies. There are two ways businesses typically set quotas for their sales compensation plans, either with the bottom up or top down approach. A salary is a fixed, regular payment, also known as base pay. Including the idea of variable pay when presenting your sales compensation plan to the team adds incentive to succeed. Plan effectiveness reports. Companies seek to increase their client bases. Managers will sometimes use bonuses as an incentive for sales reps. Also, they can be mentioned during interviews to convince promising candidates to join the team. Your reps work hard for their money, and they rightfully expect to be compensated accordingly. Businesses usually take one of three routes when deciding on a payday: Whichever method you choose, make sure you are consistent when paying your sales reps. Once they get used to this structure, they will start to expect payments at a certain time, and might plan personal payments around their payday. These targets can be measured in a couple of ways, including by volume, revenue, or sales activities. It makes projecting expenses and sticking to a budget difficult, however, they arent taking all of the profits home. Based on budget, amount of reps, and the teams expectations, identify the type of compensation plan that works best for your business. It removes a lot of the individual pressures of selling and focuses on team building. Interested in engaging with the team at G2? Say Matt makes a sale where the revenue total was $5,000 and Beth makes a sale where revenue was $4,500. With different monetary values attached to different tasks, this plan is easy for reps to grasp and be motivated by. The amount of commission a person earns depends on the business, but its usually a percentage of the revenue from a particular sale. Postmortem: After plans have been operational for a few months and modified to incorporate feedback, its important to convene relevant stakeholders to review what went well in the design and rollout process and what didnt. Remember to evaluate, review, and modify your plan when necessary. A company may create incentives based on renewal percentage. Commission acts as an incentive to never stop selling, and if that extra benefit isnt there, sales reps might kick their feet up and call it a month once they hit their quota. We have all the tools and downloadable guides you need to do your job faster and better - and its all free. 
Also, the goals that sales reps are working towards arent directly related to those of the company overall, making it possible for them to lose sight of your overarching mission. They assess potential changes and apply modifications to the incentive plans at the appropriate times. Never assume anyone is well-off enough to be late in paying them. This compensation plan will only work for sales reps who work in a very team-based manner and culture, where everyone is striving towards a common goal. Businesses use the gross margin commission plan if their reps are offering discounts to customers to hit their quota. Incentivizes reps to surpass their quota. So if your business is shifting their thinking to high value products to boost earnings, the relative-commission plan is your best bet. If a client is under contract with the account managers employer for products and services, the account manager is responsible for ensuring the current customer renews business with the employer. Doing so helps them prepare plans for inevitable changes. If they surpass their quota and hit 115%, they will receive 115% of their commission. These may include, for example, better specifying the roles of various stakeholders or more clearly outlining the governance structure for incentive plan management and design. In addition, successful plan designs tend to be grounded in a few fundamental principles. There are two different rounds of breaking down your sales team for the compensation plan. Shifts focus from revenue to profit, which is better for the business in the end. Ongoing plan changes: Companies continuously refine their incentive plans, most commonly on an annual basis. Right now, businesses are operating within thelongest sustained economic expansion in history. Secondary objectives are related to the primary ones, but they are a lower priority. Discussing salaries with reps can be a stressful conversation to have, and you dont want miscommunication to make it even worse. Lay out the sales compensation plan in a way that highlights the parts that reps care about. Based on market research and competitor analysis, a sales manager sets a quota of $20,000 this month. A salespersons quota is typically correlated to their compensation plan. Here are some common ones: After each step you complete when making the plan, make sure all actions point right back to these main ideas. Account managers have assigned customers and ensures their needs are met. Make sure each team member knows what is expected of them once you implement the plan. A few of these changes could include headcount changes, a new industry focus, a revised product roadmap, or revisions to the marketing strategy. Sales reps can see splitting the commission as unfair, depending on how equally the commission is being generated. Identify your key objectives for the sales compensation plan, and ensure they work towards the bigger picture. The amount they earn is the same, but businesses typically have a lower leveraged sales compensation plan, meaning the base pay exceeds variable pay within the on-target earnings. A primary account manager goal is keeping his client base. On-target earnings is a forecast of the total potential compensation for a specific position, including base pay (salary) and variable pay (commission and bonuses). With this pay structure, the salary and percentage of commission received will not be as high as the compensation plans that focus on one of those two things alone. We can all agree that payday is the best day. Depending on the selling opportunities available in a certain territory, some reps will hit these benchmarks and milestones easier and more often. They are often part of the sales department, responsible for maintaining current clients and keeping them satisfied. Heres a step by step breakdown of setting goals with the bottom down approach: Quotas set using the bottom up approach are often a lot more reasonable and balanced compared to the top down approach. Incentives are essential to sales, as they motivate employees to increase their books of business. Involvement of the sales rep in buying decision. Even the most motivated employees need a nudge to keep them performing at their best, and performance-based incentives can serve as that nudge. Sales teams appreciate certainty and predictability, and these guidelines make the process more reliable. Your salary would be your base pay, and potential bonuses and commission make up variable pay. If you need more clarification, just refer back to the types of sales compensation plans for more detail. These should include all the information in the above reports, as well as operational metrics. Her work has appeared on Blue Cross Blue Shield websites and newsletters, the Houston Chronicle and The Nest. Account managers are incentivized to upsell to current customers. Here are some typical ones: Within each of those roles, you can create a tiered system of positions to fairly compensate employees based on their responsibilities and workloads. There is still a cap on how much they can make, so once they hit that quota and get their bonus, they might lose motivation to sell. Also, it takes a lot of stress off sales reps because no matter what, they see consistent pay. System and tool upgrades: A vital component to achieving compensation management success is ensuring that incentive compensation management software supports plan design, adaptability, and execution. Unfortunately, the work doesnt stop once youve implemented your first version of the sales compensation plan. With the absolute-commission plan, managers dont need to set quota for sales reps. And although this plan might seem like it evens out the playing field, this equal pay structure might benefit some reps more than others. If someone on a commission-only plan is solely qualifying leads, they shouldnt make as much as someone who is taking a customer all the way down the sales pipeline and closing the deal. Sales reps still have a limit on how much they can make, which doesnt give them any reason to keep selling once they get their bonus. A salary-only sales compensation plan is not very common for sales teams. This happy medium might look different for each business and role. Being compensated on commission alone also motivates reps to create lasting relationships with customers, which is good for business. 2022 Anaplan, Inc. All rights reserved. Still, the ability to spot forecast risks, model and compare different paths forward, and make justified changes to compensation plans may help sales and sales operations managers maintain stability. Ongoing communication: Clear and consistent communication is essential to ensure that reps understand what is expected of them. Remember, all of your goals for the sales compensation plan need to align with those of the sales team overall, and ultimately back to the business. According to the Alexander Group, in 40% of organizations, sales operations or sales management are also responsible for redesigning the incentive plan on an annual or semiannual basis. Keeping track of the balance between base and variable pay can be complex for administrators, especially when using a tiered system. Similarly, advanced scenario planning allows plan creators and plan managers to view all the effects of potential changes to the incentive plans before those changes are rolled out to the sales team. This will help you plan how much money to set aside for bonuses. The following are some standard groupings of metrics that can be included in any report: If an organizations incentive compensation plans are not driving ideal behaviors, three strategies can often help: Review incentive plans to ensure that they are tied to corporate goals. Often, a simple table with the breakdown will do. There are nine main types of sales compensations plans that businesses use. These incentives should apply to people of all skill levels, roles, and experience. Expand your knowledge. The base salary plus commission compensation plan gives sales reps a fixed salary as well as commission from their sales. As you go about putting the plan together, make sure you have a list of basic requirements and main ideas you want the plan to include. We suggest a structured approach that contains four phases: (1) a planning session that begins two to three months before implementation; (2) a diagnostic review of plan performance that includes relevant stakeholders; (3) an implementation phase that communicates all new plans, targets, and accounts to gain buy-in from salespeople; and (4) an ongoing adjustment phase in which plans are re-evaluated and modified based on market or business changes. A commission-only compensation plan pays reps solely based on their performance and the amount they sell. Before plan creators begin devising the incentive compensation plans, they should make sure the plan incorporates them: Responses to a 2017 Alexander Group Survey question Who owns sales compensation? reveal that in 40% of surveyed organizations, the responsibility falls under sales operations or sales management. Find parameters for the incentive plan that will make your entire sales team more productive. They adapt to evolving company strategies, acquisitions, product launches, and shifts in the market or their customer base. You can also determine a positions on-target earnings based on the quota designated to it.
Communication also means surveying salespeople after the yearly plan rollout to gather their feedback so that each successive rollout becomes smoother. With those roles broken down and different levels designated, choose a type of compensation plan. A Sales Compensation Plan That Will Inspire and Reward Reps, Tips for creating a sales compensation plan, What It Takes to Become a Great Sales Manager (+Salary), 5 Ways to Tailor Compensation to Increase Employee Retention, IT Executive Compensation Expectations During COVID-19 [Infographic]. Personally, I would take it easy. This compensation plan incentivizes reps to surpass their quota, meaning it can get expensive for businesses. They must be managed to assess the impact of potential changes on the rest of the business. The base salary plus bonus compensation plan includes a salary and a bonus. Best-in-class companies convene steering committees throughout the year. The sales from that territory are added up, and all the commissions are split equally among all of the sales professionals working within it. An absolute-commission plan lays out specific milestones thatll result in a sales rep being paid a certain amount of money. The thought that a sales rep can technically make an unlimited amount of money might initially be a scary thought to companies. Francine Richards is a licensed multi-state insurance agent with years of human resources and insurance industry experience. To effectively manage incentive plans to drive sales behavior, solutions should include these key features: What-if scenario modeling. The more data you can gather, the more informed your quota is, and the better it will be. Either way, theyll make the same amount. World at Work: 4 Steps for Designing an Effective Account Manager Incentive Plan, William & Mary College: Marketing Career Paths, Standard Job Description of a Boutique Sales Associate. A tricky aspect of relative-commission plans for managers is setting quotas for sales reps. You need to take experience, role, territory, and available opportunities into account when setting quotas, and doing so isnt easy. However, the only way reps can earn a big commission is to sell a lot and surpass their quota, which also translates to more revenue streams for the business. In an ideal state, comp plans are an adaptable, living, breathing entity. First, you take a look at the different positions your sales team is comprised of. In over 60% of organizations, either finance or sales operations bear responsibility for administering the program and performing calculations. Account managers may have responsibility for bringing on new customers. Here are some examples of what your primary and secondary goals might look like: Establishing sales goals and objectives will help you create incentives and rewards for reps. A sales quota is a time-bound target for a sales rep, team, or territory. The framework of a sales compensation plan will vary from business to business. Motivates sales reps to sell as much as possible. For example, these five types of reports may be necessary: Compensation registers. If you do end up offering a sales incentive plan in addition to a standard compensation plan, make sure it applies to the entire team. It can hurt your profit margin, and create a reputation that your reps are always offering discounts. Revenue segments: Incentive payouts are often a companys most significant expenditure, which is why its crucial to forecast them correctly. Its difficult to be fair, and depending on the milestones set, reps might lose sight of the companys overall mission. Commission is only a percentage. Aspects of a sales compensation plan include details like base salaries, commissions, and incentives. It is also crucial that stakeholders throughout the company work with the same data, which helps maintain alignment. A common concern and problem of using the territory volume commission plan is when some people arent carrying their own weight. Cut through the noise and dive deep on a specific topic with one of our curated content hubs. Make sure your reps are pleased with their earnings and that the plan contributes to the business overarching goals. The base salary plus commission compensation plan is a sweet spot for sales reps. Performance management and rewards: This should include but isnt limited to incentive compensation, accruals, crediting, and a range of incentivizing strategies. There are two ways businesses typically set quotas for their sales compensation plans, either with the bottom up or top down approach. A salary is a fixed, regular payment, also known as base pay. Including the idea of variable pay when presenting your sales compensation plan to the team adds incentive to succeed. Plan effectiveness reports. Companies seek to increase their client bases. Managers will sometimes use bonuses as an incentive for sales reps. Also, they can be mentioned during interviews to convince promising candidates to join the team. Your reps work hard for their money, and they rightfully expect to be compensated accordingly. Businesses usually take one of three routes when deciding on a payday: Whichever method you choose, make sure you are consistent when paying your sales reps. Once they get used to this structure, they will start to expect payments at a certain time, and might plan personal payments around their payday. These targets can be measured in a couple of ways, including by volume, revenue, or sales activities. It makes projecting expenses and sticking to a budget difficult, however, they arent taking all of the profits home. Based on budget, amount of reps, and the teams expectations, identify the type of compensation plan that works best for your business. It removes a lot of the individual pressures of selling and focuses on team building. Interested in engaging with the team at G2? Say Matt makes a sale where the revenue total was $5,000 and Beth makes a sale where revenue was $4,500. With different monetary values attached to different tasks, this plan is easy for reps to grasp and be motivated by. The amount of commission a person earns depends on the business, but its usually a percentage of the revenue from a particular sale. Postmortem: After plans have been operational for a few months and modified to incorporate feedback, its important to convene relevant stakeholders to review what went well in the design and rollout process and what didnt. Remember to evaluate, review, and modify your plan when necessary. A company may create incentives based on renewal percentage. Commission acts as an incentive to never stop selling, and if that extra benefit isnt there, sales reps might kick their feet up and call it a month once they hit their quota. We have all the tools and downloadable guides you need to do your job faster and better - and its all free. Also, the goals that sales reps are working towards arent directly related to those of the company overall, making it possible for them to lose sight of your overarching mission. They assess potential changes and apply modifications to the incentive plans at the appropriate times. Never assume anyone is well-off enough to be late in paying them. This compensation plan will only work for sales reps who work in a very team-based manner and culture, where everyone is striving towards a common goal. Businesses use the gross margin commission plan if their reps are offering discounts to customers to hit their quota. Incentivizes reps to surpass their quota. So if your business is shifting their thinking to high value products to boost earnings, the relative-commission plan is your best bet. If a client is under contract with the account managers employer for products and services, the account manager is responsible for ensuring the current customer renews business with the employer. Doing so helps them prepare plans for inevitable changes. If they surpass their quota and hit 115%, they will receive 115% of their commission. These may include, for example, better specifying the roles of various stakeholders or more clearly outlining the governance structure for incentive plan management and design. In addition, successful plan designs tend to be grounded in a few fundamental principles. There are two different rounds of breaking down your sales team for the compensation plan. Shifts focus from revenue to profit, which is better for the business in the end. Ongoing plan changes: Companies continuously refine their incentive plans, most commonly on an annual basis. Right now, businesses are operating within thelongest sustained economic expansion in history. Secondary objectives are related to the primary ones, but they are a lower priority. Discussing salaries with reps can be a stressful conversation to have, and you dont want miscommunication to make it even worse. Lay out the sales compensation plan in a way that highlights the parts that reps care about. Based on market research and competitor analysis, a sales manager sets a quota of $20,000 this month. A salespersons quota is typically correlated to their compensation plan. Here are some common ones: After each step you complete when making the plan, make sure all actions point right back to these main ideas. Account managers have assigned customers and ensures their needs are met. Make sure each team member knows what is expected of them once you implement the plan. A few of these changes could include headcount changes, a new industry focus, a revised product roadmap, or revisions to the marketing strategy. Sales reps can see splitting the commission as unfair, depending on how equally the commission is being generated. Identify your key objectives for the sales compensation plan, and ensure they work towards the bigger picture. The amount they earn is the same, but businesses typically have a lower leveraged sales compensation plan, meaning the base pay exceeds variable pay within the on-target earnings. A primary account manager goal is keeping his client base. On-target earnings is a forecast of the total potential compensation for a specific position, including base pay (salary) and variable pay (commission and bonuses). With this pay structure, the salary and percentage of commission received will not be as high as the compensation plans that focus on one of those two things alone. We can all agree that payday is the best day. Depending on the selling opportunities available in a certain territory, some reps will hit these benchmarks and milestones easier and more often. They are often part of the sales department, responsible for maintaining current clients and keeping them satisfied. Heres a step by step breakdown of setting goals with the bottom down approach: Quotas set using the bottom up approach are often a lot more reasonable and balanced compared to the top down approach. Incentives are essential to sales, as they motivate employees to increase their books of business. Involvement of the sales rep in buying decision. Even the most motivated employees need a nudge to keep them performing at their best, and performance-based incentives can serve as that nudge. Sales teams appreciate certainty and predictability, and these guidelines make the process more reliable. Your salary would be your base pay, and potential bonuses and commission make up variable pay. If you need more clarification, just refer back to the types of sales compensation plans for more detail. These should include all the information in the above reports, as well as operational metrics. Her work has appeared on Blue Cross Blue Shield websites and newsletters, the Houston Chronicle and The Nest. Account managers are incentivized to upsell to current customers. Here are some typical ones: Within each of those roles, you can create a tiered system of positions to fairly compensate employees based on their responsibilities and workloads. There is still a cap on how much they can make, so once they hit that quota and get their bonus, they might lose motivation to sell. Also, it takes a lot of stress off sales reps because no matter what, they see consistent pay. System and tool upgrades: A vital component to achieving compensation management success is ensuring that incentive compensation management software supports plan design, adaptability, and execution. Unfortunately, the work doesnt stop once youve implemented your first version of the sales compensation plan. With the absolute-commission plan, managers dont need to set quota for sales reps. And although this plan might seem like it evens out the playing field, this equal pay structure might benefit some reps more than others. If someone on a commission-only plan is solely qualifying leads, they shouldnt make as much as someone who is taking a customer all the way down the sales pipeline and closing the deal. Sales reps still have a limit on how much they can make, which doesnt give them any reason to keep selling once they get their bonus. A salary-only sales compensation plan is not very common for sales teams. This happy medium might look different for each business and role. Being compensated on commission alone also motivates reps to create lasting relationships with customers, which is good for business. 2022 Anaplan, Inc. All rights reserved. Still, the ability to spot forecast risks, model and compare different paths forward, and make justified changes to compensation plans may help sales and sales operations managers maintain stability. Ongoing communication: Clear and consistent communication is essential to ensure that reps understand what is expected of them. Remember, all of your goals for the sales compensation plan need to align with those of the sales team overall, and ultimately back to the business. According to the Alexander Group, in 40% of organizations, sales operations or sales management are also responsible for redesigning the incentive plan on an annual or semiannual basis. Keeping track of the balance between base and variable pay can be complex for administrators, especially when using a tiered system. Similarly, advanced scenario planning allows plan creators and plan managers to view all the effects of potential changes to the incentive plans before those changes are rolled out to the sales team. This will help you plan how much money to set aside for bonuses. The following are some standard groupings of metrics that can be included in any report: If an organizations incentive compensation plans are not driving ideal behaviors, three strategies can often help: Review incentive plans to ensure that they are tied to corporate goals. Often, a simple table with the breakdown will do. There are nine main types of sales compensations plans that businesses use. These incentives should apply to people of all skill levels, roles, and experience. Expand your knowledge. The base salary plus commission compensation plan gives sales reps a fixed salary as well as commission from their sales. As you go about putting the plan together, make sure you have a list of basic requirements and main ideas you want the plan to include. We suggest a structured approach that contains four phases: (1) a planning session that begins two to three months before implementation; (2) a diagnostic review of plan performance that includes relevant stakeholders; (3) an implementation phase that communicates all new plans, targets, and accounts to gain buy-in from salespeople; and (4) an ongoing adjustment phase in which plans are re-evaluated and modified based on market or business changes. A commission-only compensation plan pays reps solely based on their performance and the amount they sell. Before plan creators begin devising the incentive compensation plans, they should make sure the plan incorporates them: Responses to a 2017 Alexander Group Survey question Who owns sales compensation? reveal that in 40% of surveyed organizations, the responsibility falls under sales operations or sales management. Find parameters for the incentive plan that will make your entire sales team more productive. They adapt to evolving company strategies, acquisitions, product launches, and shifts in the market or their customer base. You can also determine a positions on-target earnings based on the quota designated to it.