How can you design sales compensation plans for maximum impact?

Sales compensation plans are crucial for motivating and rewarding your sales team, aligning their performance with your business goals, and attracting and retaining top talent. However, designing effective sales compensation plans can be challenging, as you need to balance various factors, such as market conditions, sales roles, revenue targets, commission rates, incentives, and expenses. In this article, you will learn how to design sales compensation plans for maximum impact, by following these six steps:

1 Assess your sales strategy

The first step is to assess your sales strategy and identify your objectives, priorities, and expectations for your sales team. What are your revenue goals, target markets, customer segments, product lines, and competitive advantages? How do you measure and evaluate your sales performance? How do you differentiate your sales roles and responsibilities? These questions will help you define the purpose and scope of your sales compensation plan, and align it with your sales strategy.

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Vincent Burruano

Sales and Business Success Coach | Sales Trainer | Leadership and Talent Development | Mentor | Author | Speaker | Practical Sales Wisdom | Sales Advice | Commercial Relocation, Logistics, and Mobility Advisor
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You should ensure good alignment between your business goals and your compensation plan. For example, if you want more net new business, what is in your compensation plan for the sales team to focus on this priority? If you are paying the same commission for existing and new business, they may not give new business the attention you want. However, if you pay more for net new, you will get their attention. Remember, it's not what you say, but how you pay that will have the biggest impact. The best sales professionals want to maximize their income potential and will spend time where they can leverage the compensation plan. Encourage them to focus on your top priorities by rewarding them with the best income potential in those areas.

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2 Choose your compensation model

The second step is to choose your compensation model, which is the combination of fixed and variable pay that you offer to your sales team. Fixed pay is the base salary that you pay regardless of sales results, while variable pay is the commission or bonus that you pay based on sales results. There are different types of compensation models, such as salary-only, commission-only, salary-plus-commission, salary-plus-bonus, or draw-against-commission. The best compensation model for your sales team depends on several factors, such as the nature of your sales cycle, the level of risk and reward, the degree of control and autonomy, and the market norms and benchmarks.

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Manickavasagam balasubramanian

National Capability & Training Manager/Human Resource Management /HRBP/Diploma Training and development
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Sales compensation plan should be linked with the process parameters which can lead him to achieve his objective has expected and their compensation should be based on the KPI parameters and overall sales achievement. It can be divided in short term and long term achievement . Which it will be easy for him to focus on annual appraisal and to earn and also it can increase is earning potential ( base salary & Incentive)

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3 Set your commission structure

The third step is to set your commission structure, which is the formula that you use to calculate the variable pay for your sales team. There are different types of commission structures, such as flat rate, tiered rate, split rate, residual rate, or quota-bonus. The best commission structure for your sales team depends on several factors, such as the complexity and length of your sales process, the size and frequency of your sales transactions, the quality and profitability of your sales outcomes, and the motivation and behavior of your sales team.

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4 Design your incentive plan

The fourth step is to design your incentive plan, which is the set of rewards and recognition that you offer to your sales team for achieving or exceeding specific goals. There are different types of incentives, such as cash, non-cash, individual, team, or company-wide. The best incentive plan for your sales team depends on several factors, such as the relevance and value of the incentives, the clarity and attainability of the goals, the frequency and timing of the payouts, and the fairness and transparency of the criteria.

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5 Communicate and implement your plan

The fifth step is to communicate and implement your plan, which is the process of informing and educating your sales team about the details and benefits of your sales compensation plan, and ensuring that they understand and accept it. This step is essential for building trust and commitment among your sales team, and for avoiding confusion and disputes later on. You can communicate and implement your plan by using various methods, such as presentations, meetings, manuals, contracts, or software.

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6 Monitor and evaluate your plan

The sixth and final step is to monitor and evaluate your plan, which is the process of tracking and measuring the results and impact of your sales compensation plan, and making adjustments and improvements as needed. This step is important for ensuring that your plan is effective and efficient, and that it meets your sales strategy and objectives. You can monitor and evaluate your plan by using various tools, such as dashboards, reports, surveys, or feedback.

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7 Hereâ€™s what else to consider

This is a space to share examples, stories, or insights that donâ€™t fit into any of the previous sections. What else would you like to add?

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Tariq Ahmad

Global Sales | Doctoral Candidate | RevOps Researcher
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Sales Compensation is a great motivator and need to be 1. Simple yet Comprehensive 2. Clear yet Flexible 3. Fair yet Challenging It should be both short term (cash) and long term bases (stock) as well as monetary and non-monetary.

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Thomas Ellis

ðŸ¥‡ Top 15 Sales Coach in 2024 ðŸŽ¯ We Help You Master The Fundamentals of SalesðŸ’°ðŸš€Author of the B.U.D. The Process That Gets ResultsðŸ’°ðŸ’° Sales CoachðŸ’°ðŸ’°Sales EnablerðŸš€ðŸš€ Small Business CoachðŸ’° Golf Junkieâ›³ ðŸ“ž301-343-0001
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The sales commission program should be easy to calculate. The sales should be able to sit in their car after closing a deal and figure out how much money they just made. Also, the compensation should drive the buyer you desire. Example: If you want the sales reps to close a new business then the commission for acquiring a new customer should be higher than selling to an existing customer. At the end of the day, the behavior of the sales team will driven by the compensation plan.

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How can you design sales compensation plans for maximum impact?

1

2

3

4

5

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1 Assess your sales strategy

2 Choose your compensation model

3 Set your commission structure

4 Design your incentive plan

5 Communicate and implement your plan

6 Monitor and evaluate your plan

7 Hereâ€™s what else to consider

Sales Management

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Directory

How can you design sales compensation plans for maximum impact?

1

2

3

4

5

6

7

1 Assess your sales strategy

2 Choose your compensation model

3 Set your commission structure

4 Design your incentive plan

5 Communicate and implement your plan

6 Monitor and evaluate your plan

7 Hereâ€™s what else to consider

Sales Management

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