Justin Lane Show The new year usually signals new sales compensation plans for many companies. To provide the right incentives for growth and success, you must think strategically in your sales compensation planning and aim to inspire and empower sales teams to outperform the competition. You must also carefully model and scope the financial impact to the organization for the proposed plan and anticipate how reps will game the plan to ensure alignment with corporate goals. Sales compensation model creation can be a complex process, from ideation to implementation, to management. To help ease the stress of compensation planning season, we’ve broken down incentive planning into five simple steps. The truth of the matter is that your sales compensation plan touches several departments in your company in addition to sales. Knowing this, you should include key players from each team so your final plan provides incentive compensation across the entire organization. Start building your team with four key players in mind:
It is also important that you do not forget to inform the following:
With your compensation planning team built, it is time to outline your plan’s foundation. To simplify this process, use the ABCs of sales compensation planning. There are no one-size-fits-all sales compensation strategy. Rather, remember that different incentive plans are required for each sales role, and each plan should be tailored to the individual roles’ parts in the sales process. Consider the following: Should sales reps tasked with bringing in top-line revenue and new logos be paid the same as relationship managers helping facilitate a transactional renewal? No, these two sales roles at the same company should have vastly different pay mixes, plan components, and mechanics. Just like your company’s unique culture, each company also has its own pay philosophy. Ask yourself the following questions when planning your pay philosophy:
The answers to these questions will help determine the level of reward for each role in your incentive plan. A strong sales compensation model should be aligned with company goals, simple to understand and communicate, and give sales reps and managers target objectives to work toward. Ultimately, this will help your plan incentives drive your desired sales behaviors. On-target earnings, or OTE, is base salary plus potential variable pay. Pay mix is the ratio of base salary to variable pay at target. More aggressive mixes implement 50/50 or 60/40 ratios, while less aggressive companies aim for 80/20 or 90/10 ratios. You should base your pay mix on each rep’s type of selling, length of sales cycle, and amount of transactions. For rule of thumb, base your pay mix aggressiveness on the following:
Keep in mind that because sales managers have a wider set of responsibilities, they should almost always work on a less aggressive pay mix than their reporting reps. The first step is to decide whether you’ll pay reps on a commission plan, a goal-based quota, or an add-on bonus model. Rates, gates, and payout curves and accelerators are design decisions that have to be made as well. This is a great time to get your HR department involved because it most likely has a career-progression model you can use to plan for different sales roles. One of the most important parts of your sales compensation plan is components and weights. Ideally your plan should be easy to understand, objective in nature to drive proper sales behaviors, and give sales teams a set of achievable components. Your incentives should also be tailored to each sales role and its part in the sales process. Base the majority of your variable pay on individual achievement. This helps avoid sales reps being held accountable for things they cannot control. Use team goals and bonuses as accelerators to individual behavior. Communicating your plan is a vital step in the compensation planning process. New plans can often be met with resistance from sales reps, employees, and management and often create challenges, including:
The best way to communicate your plan starts with transparency. Your plan should be communicated from the highest level of sales management, such as the VP of sales or chief sales officer. Focus on the differences between the new and old plans, more specifically sales reps’ benefits and how they can maximize their earning potential. The ultimate goal is to implement a plan that is easily understood by sales teams. Once implemented, your plan should be monitored to see if mid-year adjustments are needed. Tools for gathering information and tracking how your compensation plan is performing can prove very helpful. If you notice there is room for improvement, ask yourself:
Strong compensation plans are constantly monitored and adapted to market trends and sales team needs. At mid year, a plan evaluation will help you decide the best path moving forward with your compensation plan in the future. A successful sales compensation plan takes careful consideration and strategy. With a team of key players, you can easily build a compensation plan that empowers your sales teams, is tailored to individual sales roles, benefits each part of your organization, and ultimately helps you outperform the competition.
What are the three sales compensation methods?Three basic compensation plans are available to sales management: salary, commission, and combination (salary plus incentive) plans.
What are various types of sales compensation plans?6 Different Types of Sales Compensation Plans and Models. Straight Salary. Straight salary sales compensation plans aren't very common, but they're suitable for some organizations. ... . Commission Only. ... . Salary Plus Commission. ... . Territory Volume. ... . Tiered Commission. ... . Profit Margin.. What type of commission offers a salary plus commission?The base salary plus commission plan might be the most conventional commission structure With this plan, salespeople are provided a base salary with commission. The standard salary to commission ratio is 60:40, where 60% is fixed and 40% is variable.
What is sales compensation What are different sales compensation methods available for sales professionals?A sales compensation plan is a structured program for determining how much a sales representative earns based on their performance. It includes details about all aspects of a salesperson's earnings, such as their base salary, commission, bonuses, and benefits.
|