A critical part of a sales department
Well designed sales compensation plans have a clear structure and intent. Commission plans are important for motivating sales organizations. And, they drive sales departments toward success and the whole business to achieve revenue rated goals when executed correctly.
Here we present seven basic building blocks at the highest level of sales compensation plans. Furthermore, these will break down the modeling elements that go into commission strategy.
Total cash compensation
This is the cash that a salesperson should earn for hitting quota. In sales compensation plans this is the pay mix. At the end of the day, this building block refers to the base salary and compensative available to achieve the expected results.
Salary / compensation ratio
This is about the proportions that salary and commissions represent as percentages of total compensation. Moreover, this is a way to find out if you are compensating your salespeople fairly. And, doing this calculation will justify making any adjustments in your sales compensation plans.
Incentive pay leverage
It is important to calculate the amount of upside opportunity that outstanding sales performers can earn. Moreover, this should be calculated beyond the target total cash compensation. As a matter of fact, this is a great practice in sales compensation plans. But, plan strategically and cleverly.
Have a clear idea of the metrics that will be associated with performance success. Furthermore, these metrics should be both financial and non-financial. This is where performance management takes place in your sales compensation plans. Click here to learn more about its key elements.
This building block in your sales compensation plans define the levels of achievements. Furthermore, it includes aspects like target, threshold, and excellence. Remember to set an appropriate performance range according to goal difficulty and desired motivating effect.
Sales compensation plans formulas
Apply the right mathematical ways to your sales compensation plans. Plus, the opportunity for payment should relate to salespeople performance. Consequently, you will be able to determine the overall payout. Selecting a formula depends on factors like sales role, type of selling and the business cycle.
Performance and payment periods
Establish a time period over which performance will be measured in your sales compensation plans. And, define when the payments will be made. Moreover, the goal of this building block is to encourage salespeople to keep selling successfully across periods.
Embrace your sales compensation plans, and make sure your team is embracing them too. But, this can be a specially hard challenge. But, with these building blocks strategically defined, the result will only be the success of your business.
Donnolo, M. (2013). What your CEO needs to know about sales compensation: Connecting the corner office to the front line. New York: AMACOM.