Sales Tip: Sales Compensation Guidelines
Cream rises to the top, oil and water separate and driven sales people will perform toward their compensation drivers. Early in my sales career a start-up wanted a fast increase in market share. To achieve this they priced aggressively and set a heavy bonus in addition to generous commissions to sell 50 units for the month. Because of the bonus, the 50th sale was worth 15% of my total monthly earnings. I kicked in my commission for the last sale (2% of month earnings) to achieve the bonus.
There were no rules that I could not do that, but ownership was upset at me for “cheating” to hit my bonus. What I was doing was working my pay plan. Every smart sales person will understand their pay plan and work to maximize earning. It is important to create a plan that profits both the company and sales person.
When creating a compensation plan, there are a few general guidelines I follow.
- » Clarify or determine your company goals. When a company is clear about growth and profit goals it creates the framework to build individual sales targets and compensation.
- » Total compensation should be fair for average performers and above average for top performers.
- » Base salaries should be based on the sales cycle and size of the market opportunities. The longer the sales cycle and smaller the market would call for a higher base and smaller commission percentage. For shorter sales cycles and greater market potential the opposite is true.
- » Commissions should be targeted on areas the salesperson has control over and will profit both the salesperson and the company.
- » Create a team bonus. It will encourage sharing and support, and minimize unhealthy competition.
The company I mentioned above did not clarify their goals or ensure both the company and salesperson profited. They were simply shooting from the hip trying to sell something.
A well thought out compensation plan will keep your best people happy and weed out those who cannot meet performance expectations. If you have questions about your compensation plan give me a call or send me a message and I would be happy to discuss it with you. Phone: 509-293-4121 / email: rene@salesmanagernow.com.