It seems that compensation plan structure is a hot topic with many Braveheart clients. The following are a few things to keep in mind when structuring compensation plans for your sales team.
1. Not all salespeople are money-motivated.
In fact, from the work that we do with clients and the thousands of assessments we see of salespeople, it appears that the majority of salespeople are NOT motivated solely by money. This means that ─ for most salespeople ─ increasing the commission opportunity will not necessarily incent them to behave dramatically differently. You could lower the base so substantially that they can’t survive unless they do more, but for many this tactic just increases turnover.
2. Remember to reward the behavior you want.
For instance, if you sell systems which have an installation component and a smaller recurring revenue component, but your company value is driven by the recurring revenue component, then the salespeople need to be rewarded for increasing company value ─ which means on the recurring revenue component, not just on the big installation sale.
3. Whether you incent on topline sales or on profit is company specific.
If your salespeople have control over the profitability of their sales, then by all means incent on profit rather than just topline sales. This will reinforce the right behavior. A plan design idea that we share freely with business owners is a concept whereby the salesperson gets to pick their compensation plan for the year.
Set up three different levels of compensation as follows:
• Level 1: Highest base pay and lowest upside potential (and total compensation) through the commission available
• Level 2: Middle base pay and slightly higher upside potential (and total compensation) through the commission available
• Level 3: No base pay and highest upside potential (and total compensation) through the commission available
Allow the individual to select which plan they want for the year.
This is how it works from there:
IF the individual selects Level 1, then they must hit a certain sales goal for every time period in the year (month or quarter, whichever is appropriate).
IF the individual does not meet the sales goal for the time period then they automatically get moved to Level 2 for the remainder of the year. No questions asked.
IF in future time periods they do not meet the sales goal for Level 2, then they are moved to Level 3, and in the event they do not meet the Level 3 sales goal they lose their job.
The beauty of the plan is that the individual can select where they are comfortable. To work most optimally, the individual should be aware that they can make the most money with Level 3. Do not allow individuals to move back to a higher base pay level during the year.
Finally, when calculating the different commissions available, think in terms of ROI.
Consider these three numbers:
1. The sales that the person must generate at each level for the company to breakeven on them (and be realistic about how long it will take a salesperson to get there).
2. The sales that a person must generate to keep their job (breaking even is rarely enough).
3. The sales that a person must generate for the company to receive a 5x ROI on that individual.
When was the last time you reviewed your sales compensation plans? If it’s been more than a year, it’s probably time to dust them off.
To learn more about what motivates a salesperson and measuring their ROI, review our sample candidate assessment:
You may also be interested in these related posts on sales compensation: