Which Sales Compensation Plan Is Right for Your Business?

Sales is a competitive department to be in. You need your team members to deliver their best performance, every single day, and you need them to continue striving towards their sales goals.

Most sales team leaders are looking for ways to ensure their reps stay motivated, engaged, and productive. One of the most obvious ways to do this is to provide incentives. For many people, the best incentive is compensation.

What are the different types of compensation?

There are many different types of compensation. You could promise your salespeople a bonus, commission, or raise for meeting sales targets. You could also offer them additional vacation time. Another form of compensation could include stock options, benefits, or pension plan contributions.

Not all forms of compensation are offered as a reward for good performance. In fact, a good way to ensure employees stay motivated is to offer them a great compensation plan.

How should you structure a sales compensation plan? There are a few ways to do it. Consider the following, and think about which might best suit your business.

The Salary-Only Compensation

This is a common compensation plan for businesses to use, frequently deployed in other areas of the business. It’s less common in sales departments, since sales typically requires additional incentives for performance.

With a salary-only compensation plan, employees are offered an annual salary. They may also be offered benefits, if you have an employee benefits plan, along with vacation days or lieu time. Employees are not offered bonuses, commissions, or other forms of compensation as incentives for exceeding performance expectations.

You Can Use Salary Plus Commission

A salary plus commission compensation plan sees you offer your salespeople something over and above their base salary for their performance.

Typically, commission is offered as a percentage of closed deals. The idea is that the commission incentivizes sales professionals to work harder towards reaching their goals.

A Commission Only Plan Can Be Risky or Rewarding

Another option you have when it comes to sales compensation plans is the commission-only plan. In this set-up, your salespeople only earn if they sell.

Salespeople earn commission for each sale they make, since they don’t have a base salary. Commission is thus not a reward for exceptional performance or exceeding goals, but the sales rep’s only compensation.

Territory Volume Compensation Plans Promote Teamwork

Under this plan, your sales reps will earn for every territory they make sales in. At the end of the period, the sales for each territory are tallied up, then divided and split evenly between all reps who worked in the territory.

This is a good model for businesses with clearly defined sales territories and teams working towards common goals. If you don’t have sales territories or your teams are more competitive, this may not be the best set-up for your business.

Profit Margin Plans Work for Start-Ups

If your business is just starting out and you don’t have a lot of cash liquidity, a profit margin plan might be right for you. Under this plan, sales reps earn based on how well the company performs. This makes sense, since sales are what powers your profits.

The major drawback is that it requires your employees to be able to support themselves if things aren’t going well.

Different compensation plans have different advantages and drawbacks. Not all of them are right for your business. Your compensation plan will cost the business, so choosing the right one will help ensure you’re getting an great ROI.