Sales rep compensation can be a a mine field of options and decisions.
- Do I pay a salary and bonus or straight commission?
- How do I set a quota for my reps? DO I set a quota?
- If my sales reps make a lot of money, how do I keep my other employees from becoming disgruntled?
A biggie for many companies is:
- Do I establish an earning ceiling for my reps or leave it limitless?
It seems highly risky and throw caution to the wind to NOT have a ceiling. But I would argue that there is virtually no place for a earnings ceiling for a sales position.
Good sales reps love to sell and love to make money. Therefore the most fertile ground for folks like these is a limitless one. A properly structured comp plan, that excludes an earnings ceiling, will generate maximum revenue and profit to the company. Conversely, a comp plan that has an earnings ceiling will, de facto, limit company revenues and profits.
Here’s a few pointers to be considered when developing a compensation plan that drives maximum COMPANY benefit:
- Establish an annual target/quota for every rep.
- Pay a salary to a rep but they need to reach a certain level of performance before commissions kick in. Around 80% of quota.
- Pay a commission revenues generated after that 80% is achieved.
- Pay a higher commission after reaching 100% of quota.
- Pay an even higher commission or bonus at incremental higher achievement levels
- Run models of compensation at various, even extreme, levels of performance and measure that against the profitability to deliver those marginal dollars. Agree with your CFO what level of profitability needs to be met and fit the comp plan to that level.
- Take into account any reasonable scenario that might artificially balloon a sales rep’s performance and hence their compensation. This is sometimes called the “windfall” clause. But it needs to be clearly spelled out in advance and logical to all.
- Put it all in writing at the start of the year so reps start salivating right away.
- Create an compensation spreadsheet so reps can plug in their own numbers so see their earnings potential. This is a powerful to motivate reps.
- Measure and pay annually. Start over on January 1st or whenever your fiscal year starts.
One last comment: There are CEOs out there (mostly in smaller businesses) who cannot stomach the idea that a sales rep in their company could actually make more money than them. This attitude is illogical and pure ego. A properly constructed compensation plan, as described above, will always deliver a profitable achievement for the company. What more should a CEO ask for?
Thanks for reading my blog.
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Authored by: Geoff Vincent