We are often asked about how to structure competitive sales compensation plans and how to tailor incentive programs to generate the right sales results.
Here are 5 basic things to know when developing and managing a sales compensation plan:
First, assess the effort and risk associated with delivering the sales you need from the sales person/position. The higher the effort and risk, the higher the compensation will have to be to attract a capable sales person.
Identify the On Target Earnings (OTE) that the sales person will be paid in base, commissions and other incentives if they deliver the target revenue and ensure that this compensation level fits into the desired cost structure in the company’s business plan. Keep in mind that unless the OTE is in line or above what competing employers are willing to pay, it will be difficult to attract the best sales talent available.
3. Choose Carefully
Worry less about paying a sales person who doesn’t secure sales, and focus attention on carefully picking a top performer who has a track record of exceeding goals – they won’t show up to work to simply earn a base and are most likely to put profits in the company’s bank account.
4. Create Incentive
Design an OTE that is roughly 50% base and 50% commission to provide an exciting financial reward based upon performance.
5. Big Upside
Do not place a cap on commissions and ensure that the compensation fits the business model and cost structure at all levels of revenues (…and if the sales person can afford several Porsches, they have probably earned the company a Learjet).
Beyond the comp plan basics, the most important thing to get right is the selection of the sales person. If you pick the wrong person, the comp plan won’t matter – the sales person won’t deliver the sales and your costs will be much larger than the base salary. These include lost revenues, lost investment in training, additional management time and effort, damaged customer relationships and disruption to team morale. Design a compensation plan that creates an incentive, pick the right person, reward for success and enjoy sales growth.
Eliot received his B. Comm. from Carleton University and has been honored as a Top 40 Under 40 Award winner.
He co-authored Sales Recruiting 2.0, How to Find Top Performing Sales People, Fast and provides regular insights on sales team management and hiring on the Peak Sales Recruiting Blog.
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