Practical Tips For Developing an Effective Sales Compensation Plan – Part 1

Effective Sales Compensation Plan

Practical Tips For Developing an Effective Sales Compensation Plan – Part 1

Your sales compensation plan is the key to hiring and retaining top sales talent. But striking the right balance is no simple feat — you need to find the sweet spot between keeping your expenses low and yet your pros’ compensation competitive. If salespeople don’t feel incentivised by the plan, they’ll seek other opportunities or simply become complacent and stop growing your revenue.

Here are the first 2 of 4 practical tips for developing an effective sales compensation plan and incentivizing your sales talent to succeed.


Tip #1: Think 50/50 When it Comes to Setting Commission

Commission only compensation plans are not really your best bet since they don’t attract the best sales talent. But striking the optimum balance between what a pro can expect to earn in base salary vs. commission is tricky. In fact, getting your commission rate right is one of the biggest hurdles to overcome when developing an effective sales compensation plan. While commission rates vary greatly from industry to industry and company to company, landing on the right commission rate is what makes your plan truly effective.

A good place to start is 50/50 in terms of overall earnings for a top pro; meaning, set the rate so that the total possible commission they can earn would be equal to their base salary. E.g., if their base is $46,000, then their commission rate should allow them to earn an equal amount if they perform well.

Effective Sales Compensation

Tip #2: Reduce the Turnaround Time for Commission Payouts

A simple way to increase the efficacy of your sales compensation plan is to provide sales reps with rapid payment of their hard earned commissions. It’s so important to link payment and performance; if reps have to wait to see a payout then you lose the correlation between behaviour and reward. Conversely, if you consistently pay out commissions quickly, your salespeople will feel the hit of instant gratification and be more motivated to succeed.