Few factors are more vital than maintaining a competitive sales compensation when it comes to recruiting, hiring, and retaining the best salespeople. Here are our tips to help you make better decisions about base salary, commission, bonuses, and other vital factors which will influence how your sales team members act.
First and foremost, we suggest that whenever possible, be upfront and transparent with your sales team members. Make sure they know compensation packages are a work in progress and that they understand the goal of the plan isn’t to pay them as little as possible — but to reward good behaviours and maximize their income.
If you discuss theups and downs of each plan, and listen to what your salespeople have to say, you’ll stand a much better chance of winning buy-in on a comp plan that works for everyone.
Assigning Full Commissions
For most sales positions, base salary is a must. The base salary should be high enough to cover basic living expenses for the salesperson, but not so high there’s no need to earn the commission.
If you pay commission only, you’ll attract someone who either can’t get another type of sales job (not who you’re looking for), or someone who doesn’t need regular income (also not who you’re looking for).
Reward Good Behavior
Promote good sales habits by financially rewarding positive behaviours whenever you see them. For example, if you want more new business than repeat purchases, offer a higher commission on net new sales. A commission structure here works in your company’s favor because you don’t pay people unless you make money — and you can incentivize the type of business you want to gain.
Shared commission and bonuses can work well in team selling environments, and when salespeople might not have total control over the outcome of a deal.
Correct Commission Rate
Often, commissions are a percentage of net profit or a percentage of total revenue. They vary greatly by industry and company and can range from 1% to 10% of revenue or 20% to 40% of gross profit. A good rule of thumb for choosing the right commission rate is: The total commission for top-performing salespeople should equal the salesperson’s base salary.
Payment in a Timely Manner
Paying commissions quickly and consistently increases the likelihood rewarded behaviours will be repeated. Drive instant gratification by reducing the turnaround time on commission checks and see an increase in sales motivation.
This type of compensation plan includes a substantial base salary and low commissions during the onboarding and ramp-up time. However, the base salary will decrease over time as less-experienced reps’ sales and commission rate increase.
Consider how territory and product line issues should influence a salesperson’s compensation. A new territory or product, for instance, might need higher commissions during the early months.
Contact Sales Resource Group for more helpful tips related to sales comp and planning for sales success.