There are many options for compensation for sales force members. These include commissions based on sales, stock options, incentive plans, and unique bonus plans. The company’s overall goals are the focus of successful plans.
Threads
A compensation plan should consider the following: product introductions, product focus (new, most lucrative), personnel recruitment goals, customer service, overall industry position, orders and bookings, delivery cycles length, long delivery cycles, start-up vs. existing, new client objectives and average order size goal. Selling expense reduction, critical activities (cold calls, customer touchpoints) are some of the variables. These areas are essential to assess in order to determine the best compensation methods.
You also need to think about the composition of your sales team. Are you looking to recruit new salespeople with different characteristics than the current team? Are you looking to retain your sales staff to build a client-based, long-term sales organization? Or is turnover acceptable? What is the acceptable level of turnover? While lowering sales compensation can be an effective way to lower selling costs and increase profits, it is not the best option. In the end, you only get what you pay. Low levels of compensation can lead to poor sales performance. The turnover rate is high if you don’t pay reasonable compensation for salespeople.
Selling Costs
Planning a compensation package is only possible if you calculate the cost of sales. To quickly calculate the COS, add the salary, commissions earned, and bonus opportunities, then divide that number by the salesperson’s revenue. An advanced approach includes marketing overhead, corporate overhead, direct expenses to the salesperson, and sales support expenses.
Understanding COS and profit margin are essential. A commission plan can be fine-tuned if it has acceptable COS. A financial officer will be able to help you determine the numbers that are missing and ensure that your plan meets your financial goals.
Styles
Compensation plans can be based upon regular or periodic results. Most include multiple revenue and profitability metrics. Compensation plans must include “accelerators,” such as an increased commission rate for salespeople who achieve their target levels. Here are some examples:
Tiered Profit-Based Plan – Commission rates change with profit levels. These rates can be calculated based on monthly averages, product prices, or invoices.
Revenue Quota and Unit Placements Plans –Compensation is based either on the sales volume or a percentage of the quota.
BreakPoint Plans – These are levels that can be achieved to achieve a specific level of production.
Balanced Plans – These include compensation for profit and revenue growth.
Customer Service and Customer Satisfaction Plans – These plans are based upon customer satisfaction and account growth.
Third-Party or Distribution Supported sales Compensation – Most of these plans include a basic salary and a limited commission that is geared towards revenue growth over the previous period.
Alteration
BreakPoint plans are great for companies that want to grow their revenue in a market with high competition. These plans have higher base salaries and lower commissions. It is possible to work with a sales team without having to be a strong salesperson.
A profit-based plan can be used to compensate for account growth.
A program that is based on quota-based or percentage growth compensation will help your company maintain revenue. This situation requires substantial sales compensation, with quarterly bonuses that emphasize revenue gains from new customers.
The total package of benefits includes more than just salary and commission. You may be eligible for stock options, profit sharing, vacation, insurance, and other company-sponsored benefits.
Guidelines
Here are some last points to keep in mind when you customize your plan.
Your compensation plan for new companies that are looking to expand within existing markets will be drastically different than one of the mature organizations in the same industry.
Compensation plans for new organizations in volatile markets require compensation plans with higher-than-average base salaries.
Higher COS ratios will be experienced by a new company or one that is in transition or in turnaround. Open communication, team building, and morale-building are all critical.
Programs should be developed for organizations in transition or that are positioned to proliferate. The company can test ideas, adjust and protect itself over this time period. This protects salespeople from unrealistic programs that could limit their earning potential.
Salespeople shouldn’t be asked to do too many tasks at once. Many incentives and compensation plans reward only two or three aspects. They should be tied to the highest-priority sales or marketing goals of the company.
Before rolling out the new plan, get input from your sales team. This will help ensure that they are on board and address any concerns or questions.
It pays to take the time to develop a plan that works for you. This will help you earn more commissions as well as your company in achieving your corporate goals.
