Sales compensation planning is an important component of any sales strategy. It refers to the process of designing and implementing a sales incentive plan that motivates salespeople to achieve their targets and grow the business. Sales compensation plans can take many forms, but they typically include a mix of base salary, commission, and bonuses.
Here are some key considerations for effective sales compensation planning:
1. Define sales objectives: Before designing a sales compensation plan, it’s important to define the sales objectives that the plan will support. You will need clear sales targets and metrics used to measure performance. Start with the company targets and ensure they align to sales targets then ensure the sales incentives match. This sounds simple but its amazing how many compensation plans do not align with company goals.
2. Choose the right compensation structure: There are several sales compensation structures to choose from, including straight commission, salary plus commission, and salary plus bonus. Each structure has its own pros and cons, and the right choice will depend on the needs of your business.
3. Set commission rates: Commission rates are a critical component of any sales compensation plan.Commission rates are most commonly based on MRR/ARR bookings but can be based on a percentage of total contract value, profit margin, or other metrics.
4. There are two options here you can either a) set a commissions rate that is consistent for all sellers or b) set individual rates will be calculated based on OTE. There are also pros and cons to each of these that are worth mulling over with someone with experience. Considerations may include experience, different geograpies, different targets, etc. Sales Ops Help can help you explore these options.
5. Define performance metrics (if applicable): In addition to sales targets, sales compensation plans should include other performance metrics to incentivize salespeople to achieve specific goals. For example, a plan might include metrics such as customer satisfaction, product knowledge, or new account acquisition.
6. Communicate the plan effectively: Once a sales compensation plan has been designed, it’s important to communicate it effectively to salespeople. This includes providing clear guidelines on how the plan works, how commissions are calculated, and how performance metrics will be measured. The MOST important thing in communicating this and getting sales excited is making it crystal clear how not just to achieve the plan but how to OVERachieve. You want to break down leads, win rate, etc and then also show them the potential for making money. Compensation plans should EXCITE and motivate.
7. Monitor and adjust the plan: Sales compensation plans should be monitored regularly to ensure that they are achieving their goals. If the plan is not working as intended, adjustments may be necessary to ensure that salespeople are motivated to achieve their targets. This should be done at the very least on an annual basis and more as needed. I would also state that changing the plan every few months is also not very motivating.
Effective sales compensation planning requires a deep understanding of your business goals and the needs of your sales team. By designing a plan that aligns with these objectives and motivates salespeople to achieve their targets, you can drive growth and success for your business.