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Is Your Sales Compensation Plan Structured for Success?

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Does your company have a compensation plan that drives salespeople to succeed? With the right strategy, everybody wins.

Your company’s services may be amazing, but they won’t sell themselves! You need to attract, retain, and motivate a team of sales champions—and money talks. So, what’s the best way to compensate your salespeople?

Anyone in sales knows there are a million different compensation plans out there. Too often, executives stick with a compensation structure that was created far too long ago, and it doesn’t make sense for their current business, which can lead to performance issues or even drive top-producing salespeople away.

Picking the right mix of base salaries, commissions, and bonuses can make a significant impact on your sales team’s motivation—and your company’s bottom line. But navigating all the options can be overwhelming! Our sales consultants generally follow these points when designing a compensation plan for a client:

  • Keep it simple
  • Determine commission structure
  • Use tiers, bonuses, and kickers to drive success
  • Stop high-risk commission payments

Keep It Simple

Don’t overcomplicate things! Your compensation plan should be simple enough to explain on the back of a napkin. A streamlined, easy-to-understand commission structure is not only attractive to potential hires—your current sales team will appreciate not needing a degree in advanced mathematics (or an Excel spreadsheet) to know what their paycheck will be!

We’ve seen compensation plans that determine sales commissions based on complicated profit calculations. The fact is, when your salespeople can’t easily keep track of how much they’ll make, they’re less motivated to sell.

Too many bells and whistles are overwhelming as well. Do you really need 8 tiers and 15 kickers? Probably not. From recruitment and retention to goal-setting, a simple compensation plan almost always beats a complex one. 

Commission Structures

Sales commission structures typically fall into three categories, depending on the ratio of base salary to commission:

  1. High Base
  2. Low Base
  3. 100% Commission

It’s crucial to match the right structure to your company’s business and your salespeople’s needs.

High-Base, Low Commission

Typically, a high base and low commission compensation plans are for long consultative sales cycles. Here, the company takes on more risk by paying a higher base salary, and this risk is offset by lower commission rates.

A high-base plan is standard for businesses with sales cycles that take anywhere from 30 days to two years to close (e.g., software, medical reps, technology). With long periods of time between closes, salespeople need the monthly support of a higher base salary.

Low Base, High Commission

A low base and high commission are typical for a shorter sales cycle. Here, the salesperson takes on more risk: their compensation relies more on their performance, and their ability to make higher commissions is offset by a lower base salary.

This commission model is very common in a short sales cycle like insurance or commercial security services. It rewards quick closes and a higher sales volume.

100% Commission

A 100% commission plan is successful for seasoned sales professionals. Here, the risk is entirely on the salesperson to close business—but they have the opportunity to make more overall income.

The salesperson is typically compensated for this additional risk by a higher commission rate, which is why it’s attractive for experienced, confident producers. Rates for commission-only plans are often double or triple the amount paid by top tiers in other compensation plans.

100% commission plans can also offer a draw against commission to ensure that the salesperson receives pay even when they have a down month. 

When it comes to motivating and rewarding your top producers, a commission-only option can be a great addition to your company’s compensation strategy. This commission model is very common in industries like mortgage and real estate.

Tiers, Bonuses, & Kickers

A tiered sales compensation plan is the key to incentivizing your sales force. In a tiered system, higher sales performance is rewarded with higher commissions. Your sales goals are built right into the commission structure.

Bonuses are a useful incentive to reward salespeople for meeting monthly or quarterly goals. Bonuses can also be used to encourage your sales teams to promote new services or to prioritize higher-margin offerings. 

Sales compensation plans often feature commission kickers. Kickers increase a salesperson’s commission percentage—usually to reward them for meeting annual sales goals.

Tiers, bonuses, and kickers can all be combined in your compensation structure, giving your sales team multiple opportunities to be rewarded for their performance.

Stop High-Risk Commission Payments 

A successful compensation strategy is more than commission rates. How and when you pay commissions is just as important as how much you pay. 

Many sales organizations have risky compensation practices that seem great for salespeople, but have serious consequences when things go wrong. One common problem is paying salespeople commission before any or all revenue has been collected.

For example, a business may pay their salesperson commissions for the total value of a three-year contract, all in the first year. Or, a business pays its salesperson before the check clears. Some companies even pay commissions once the contract is signed!

When the sale falls through, or the contract ends prematurely, the company is forced to either eat the cost of the commission or claw back the payment from their employee. 

Before developing a sales compensation plan, Skillway consultants deeply research and audit our clients’ practices to make sure any risky pitfalls are caught and corrected.

Building A Winning Compensation Plan

With so many options, it’s easy to see how a sales compensation plan can get overcomplicated—or might even be working against you. Skillway sales consultants determine the best combination of incentive plans for your company’s sales goals, customize a solution, and help you implement it. You’ll attract top talent, reward successful producers, and motivate your sales team to new heights!

Ready to take your sales organization to the next level? Skillway sales consultants are experts on sales compensation, recruitment, sales team training, and more. Contact Skillway and learn how we help our clients CRUSH their sales goals (and love what they do)!

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