Sales Compensation and Incentive Plans
Profitable compensation plans for the company and salesperson
When building a dynamic sales team you can’t simply offer commissions because it’s easy math. You need to design a compensation plan that is motivating to salespeople and provides the company with the profit margin needed. It does not have to be difficult or complicated but should be geared to help meet company goals and pay a goal-producing salesperson with fair earnings.
What You’ll Get
Many of our clients have the following unanswered questions when approaching a sales compensation plan.
- How much should we pay our salespeople?
- Should we offer a salary, commissions or bonuses?
- What will cause salespeople to sell more of the products/services we prefer?
The last question is the key. There is no one best way. During our getting in step month we’ll evaluate your current compensation plan and gain more understanding of your goals. In month two we begin tunning up and will make adjustments to the compensation plan if one is warranted. Our approach to compensation is to understand short and long-term goals, profit margin targets, and desired cost of sales. We weigh all this against what will keep a good salesperson around and motivated.
When we design compensation we answer these questions:
- What is the right balance between salary and commission?
- Should we offer monthly, quarterly or annual bonuses?
- What type of incentives should we budget for new product launches or a current product push?
We then document the plan in a detailed manner that makes it easy for salespeople to understand how they’ll be paid and the expectations behind the incentives.
The biggest mistake many owners make is to expect a compensation plan to create all the motivation and support a salesperson needs to perform well. Worse, when goals are not met, more money is thrown into the compensation plan to increase their motivation. Study after study has proven that most people, including salespeople, are not motivated by money more than they are to do a job well. Here is a great resource on the subject, The Science of Motivating Salespeople by the Hoffeld Group.
Compensation is an opportunity to earn more as a salesperson if you perform well and salespeople will strive to perform better if expectations are clear and monitored consistently. When someone knows they have expectations to meet and better yet, a responsibility to meet that expectation, the responsibility becomes the driving motivation. Management is required to provide expectations and consistent monitoring.
The money is a means of compensating someone fairly for a job well done.