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TALENT & RECRUITMENT (/FR/RESSOURCES/CHERCHER/?CAT=TALENT & RECRUITMENT) 5 Different Types of Sales Compensation Plans Jun 21, 2016 | Rhys Metler Topics Covered: Sales Management (/resources/search/?query=Sales Management) | Sales Leadership (/resources/search/?query=Sales Leadership) | Compensation (/resources/search/? query=Compensation) Choosing a sales compensation plan is an important decision to make for any organization. The right plan will adequately motivate your sales people to help you achieve your overall business goals without putting your profitability at risk. However, there is no one-size-fits-all compensation plan. Each business owner will need to consider myriad factors when deciding on how to compensate sales employees, including industry, company size, sales cycle length, and more. To help ensure that you design a compensation plan (http://www.salesforcesearch.com/bid/117383/Designing-a-Sales-Compensation-Plan-Part-1) that’s best for your company and your sales department, here’s a breakdown of different options you may want to consider.
1. Straight Salary Straight salary sales compensation plans aren’t very common, but they do have a place in some organizations. With this type of structure, you’d pay your sales people a straight—albeit competitive—salary like all of your other employees, and nothing else. No bonuses, no commissions, and few, if any, sales incentives (http://www.salesforcesearch.com/blog/whatare-the-best-incentives-for-sales-people). This type of compensation plan is most often used when the industry you operate within prohibits direct sales, when sales people work as part of small groups or teams and all contributions are equal, when your sales team is relatively small, or when your sales people are expected to spend much of their time on other responsibilities other than selling. However, these plans don’t tend to offer motivation to sales people (https://hbr.org/2015/04/how-to-really-motivate-salespeople), as there are no incentives for them to work harder.
2. Salary plus Commission Salary plus commission sales compensation plans are possibly the most common plans used today. They’re structured in a way that sales people receive a lower base salary along with commission pay that makes up the majority of the total compensation. Organizations use salary plus commission sales compensation plans when there are opportunities to support all sales people on this structure and when there are proper metrics in place for tracking sales to ensure that the splits are fair and accurate. This type of plan is often the better choice as opposed to straight salary because it offers motivation to increase productivity and to achieve goals. It also offers more stability—sales people will still get some type of pay even if they’re in training, when sales are low during certain months, or if market conditions get volatile. However, it can be more complex to administer.
3. Commission Only Commission only sales compensation plans are exactly what they sound like—you pay your sales people for the sales they bring in and nothing else. There is no guarantee of income. These types of plans are easier to administer than salary plus commission and provide better value for your money paid as they are based solely on sales achieved. They also tend to attract fewer candidates, but do attract the most top-performing and hardest working sales professionals who know they can make a good income because they know how to sell. On the other hand, though, they can create aggression within your sales team and low income security, which can lead to a high turnover rate, and sales rep burnout from stress.
4. Territory Volume Territory volume sales compensation plans are most often used in team-based corporate cultures. They work through the calculation of territory volume at the end a compensation period. The total sales for the territory are then split equally among all of the sales reps who worked that territory. This plan works best when your sales territories are clearly outlined, when your sales team supports each other to reach common goals, and when your territories are rich enough to support competitive wages.
5. Profit Margin Last but not least, we have profit margin sales compensation plans. These plans compensate sales people based on how well the company is performing. Profit margin plans are most often used by startups that have a lack of liquidity. It’s best to use the profit margin plan if you know that your sales people are able to support themselves through your lean periods, when you can also incorporate long-term incentives such as stock shares, and when you have other incentives and job benefits to attract sales people (http://www.businessnewsdaily.com/5134-cool-job-benefits.html), such as flex time.
About the Author: Rhys is a tenacious, top performing Senior Sales Recruiter with 11+ years of focused experience in the Digital Media, Mobile, Software, Technology and B2B verticals. He has a successful track record of headhunting top performing sales candidates for some of the most exciting brands in North America. He is a Certified Recruitment Specialist (CRS) and has expert experience in prospecting new business, client retention/renewals and managing top performing sales and recruitment teams. Rhys enjoys spending quality time with his wife, son, and two daughters, BBQing on a hot summer day, tropical vacations and cottaging. Disclaimer: The views and opinions expressed in this article are strictly those of the author. CPSA does not endorse any of the companies, products and services mentioned within this article.
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