Setting up a compensation plan for your sales force can be one of the most challenging aspects of managing a growing business. You need to encourage your sales force to grow existing accounts and seek new customers while maintaining profits. Too much compensation can impact the bottom line and stifle future growth while too little compensation will lead to an unmotivated sales staff. Money drives behavior for sales people (and most of the general population as well). For many companies the sales incentive program relies on finding a good balance between base pay and commission. There are five rules to keep in mind when planning out your compensation model.
Start planning with your organizational goals in mind. Does your business rely primarily on one-time sales, subscription services, or upselling to existing customers? When you have identified the outcome you need from your sales staff, you will have a roadmap to reward them for the results you want. A one-time sales model will be dramatically different from a subscription service where smaller compensation may be given for initial sales with commission “bumps” along the way for contract renewals and extensions.
Keep incentives flexible. While you do not want to change your compensation plan on a regular basis, you need to keep it flexible enough to change depending on the market and sales performance. Flexibility can be built in from the beginning by defining commission increases based on a percentage of overall departmental sales or performance. For example, if a sales department brings in a million dollars in sales in a defined period of time, compensation may remain at 10% for each individual’s performance. However, if the department brings in $5 million, compensation may rise to 15%. By building a dynamic, flexible compensation plan you can reward your staff for going above and beyond usual expectations.
Make it simple. Any commission program must be easy to understand. If a salesperson has to pull out a flow chart and a calculator to decide whether or not to pull a few extra hours, you have failed to make the plan understandable and appealing. Your employees should be able to make quick mental calculations to determine what their commission will be and how much work they need to do to meet their personal goals.
Pay salaries. Your sales staff all have regular lives outside of work, filled with rent, mortgages, and other bills. They require a measure of stability in their compensation structure, and paying a salary easily fulfills this need. Without having regular and predictable income, salespeople will become overly emotional in their client relationships, sometimes being aggressive with clients and potentially losing accounts. A great salesperson who needs to make ends meet and feels uncomfortable due to being commission-only could easily leave your company and take customers away at the same time.
Never cap what a salesperson can earn. It can be tempting to limit the maximum amount payable on commissions, but as soon as your sales staff learns the magical number at which they stop getting commissions, sales hit the floor because there is no further incentive. If you need your sales force to be consistently on the job, you cannot cap commissions.
It is imperative to design your sales force compensation plan around the results you need for your business, creating a consistent plan that rewards your salespeople for the behavior that grows your business most effectively, and allows them to achieve their personal financial goals. By following these five rules of compensation, your commission program will be easy to understand and motivate your employees to work toward goals that will be beneficial to themselves and to your company.
At Alliance Group International, we have helped many companies over the years develop long term strategies that are beneficial to their sales force and to the company’s bottom line. Let us help you develop a compensation plan (and much more) that will be successful for your business. Simply fill out the quick contact form on the right or give us a call at 925-984-2441.