Tweet

Sales Compensation Guidelines

Written by: Rene Zamora

Article Overview: Money alone does not motivate most people, but incentives crafted into a well thought-out compensation plan will produce results you hope for. Here are some guildelines to help you with your pay plans.

Sales Compensation Guidelines

Cream rises to the top, oil and water separate and driven sales people will perform toward their compensation drivers. Early in my sales career a start-up wanted a fast increase in market share. To achieve this they priced aggressively and set a heavy bonus in addition to generous commissions to sell 50 units for the month. Because of the bonus, the 50th sale was worth 15% of my total monthly earnings. I kicked in my commission for the last sale (2% of month earnings) to achieve the bonus.

There were no rules that I could not do that, but ownership was upset at me for "cheating" to hit my bonus. What I was doing was working my pay plan. Every smart sales person will understand their pay plan and work to maximize earning. It is important to create a plan that profits both the company and sales person.

When creating a compensation plan, there are a few general guidelines I follow.

Clarify or determine your company goals. When a company is clear about growth and profit goals it creates the framework to build individual sales targets and compensation.
Total compensation should be fair for average performers and above average for top performers.
Base salaries should be based on the sales cycle and size of the market opportunities. The longer the sales cycle and smaller the market would call for a higher base and smaller commission percentage. For shorter sales cycles and greater market potential the opposite is true.
Commissions should be targeted on areas the salesperson has control over and will profit both the salesperson and the company.
Create a team bonus. It will encourage sharing and support, and minimize unhealthy competition.
The company I mentioned above did not clarify their goals or ensure both the company and salesperson profited. They were simply shooting from the hip trying to sell something.

A well thought out compensation plan will keep your best people happy and weed out those who cannot meet performance expectations.

Related Articles
  Maximize Your Sales Force
  Developing a Sales Compensation Plan in Tough Times
  Sales Force Compensation - X Marks the Spot
  Compliance Issues Threaten Internships
  Cultural Differences with Sales Force Evaluation

Article Tags: base salaries, commission percentage, company goals, compensation plan, generous commissions, individual sales, market opportunities, oil and water, performance expectations, profit goals, sales career, sales cycles, sales person, sales targets, salesperson, shooting from the hip, shorter sales, team bonus, top performers, unhealthy competition



Related Forum Posts
Online Sales and Marketing vs Traditional - Hi Evan, I am noticing that many of the posts in the Sales/Marketing section deal with online marketing, SEM and and SEO and Affiliates. I was wondering if it might be a good idea to separate that section into two; 1) Online Sales and Marketing; 2) Traditional Sales and Marketing
Re: Online Sales and Marketing vs Traditional - [quote="ltrahan":31w9r2iz]Hi Evan, I am noticing that many of the posts in the Sales/Marketing section deal with online marketing, SEM and and SEO and Affiliates. I was wondering if it might be a good idea to separate that section into two; 1) Online Sales and Marketing; 2) Traditional Sales and Marketing[/quote:31w9r2iz] I second the request...
Compensating your Advisory Board - Hey! Happy Monday. With regard to stock options, I am of the belief that 1-2% is appropriate historically. Personally, I would be open to considering any amount based on the level of expertise and time they are willing to give me. Although I did have one gentleman ask for 20%. I told him no. I have 7 members on my advisory board currently and I am starting to build one for my women's leadership business. I have thought about adding it to the existing 'agenda' but I need different skills and resources. Compensation varies and is kept very confidential at our board. Everyone knows they have 'skin' in the game per say, and I am very careful not to abuse that trust. For one thing, sometimes I find myself thinking that a more formally 'paid' member should be doing more legwork....that kind of stuff. Its a bit challenging but so far the dynamics work.
Hello From Marietta GA! - Hello All! My name is Tim Naylor and I am in Direct Sales! I am glad I have found EC's sites and I hope to learn and share a lot!
taxes in canada - Well in Canada we only have a few provinces and the Sales tax is slightly different. Here in Ontario the Goods & Services tax has reduced to 5% from 7% in the last year due to the promises made by the government in place.


Share this article with your friends. Fund someone's dream.

Leave a comment below or share on the left and you'll help support entrepreneurs in Africa through our partnership with Kiva. Over $50,000 raised and counting - Please keep sharing! Learn more.

Tweet

Newsletter

Get advice & tips from famous business
owners, new articles by entrepreneur
experts, my latest website updates, &
special sneak peaks at what's to come!

Name:
Email:

Popular Articles

Emotional Intelligence in Business

Think Time

What Type of Business Should I Start?

Suggestions

Email us your ideas on how to make our
website more valuable! Thank you Sharon
from Toronto Salsa Lessons / Classes for
your suggestions to make the newsletter
look like the website and profile younger
entrepreneurs like Jennifer Lopez.