Is Your Sales Compensation Plan Killing Your Sales Performance?

Published on Aug 24, 2017

It’s no secret that most salespeople don’t work purely for the love of selling. Compensation is important, but there’s more to it than just promises of high payouts. The way you structure your sales compensation and incentive plans can have an immense impact on your sales performance and culture.  Having a well-defined compensation plan is key to creating a high-performance sales environment that promotes competition and aligns reps’ behaviors with your company’s goals.

So the question is, how do you create a sales compensation plan that works?

Align Targets and Company Goals

What is your company’s top priority? Is it product sales? Acquiring new customers? Profitability? Your sales compensation plan should be designed around your top goal(s). Sales reps that meet or exceed their goal should be awarded appropriately. Set pay levels that attract and retain sales talent in your industry.

Then take it another step forward. Align performance metrics with incentives. It’s not always just about the percent of revenue or the number of closed deals. If you have metrics or KPIs tied to appointments, new business versus existing business or other activities, it’s important to incorporate those metrics into your compensation plan to drive the right behaviors.

Balance Salary and Incentives

Your company will need to determine the right mix of salary and commission that each sales rep will be paid to establish your on-target earnings (OTE). The proportion of earnings that come from salary and from incentives determines the riskiness of the plan. The proper balance varies by industry and is often based on the degree of certainty that sales reps’ efforts will directly influence sales.

Ultimately, the proper pay mix will depend on factors like your industry, the rep’s experience level and role, the average length of your sales cycle and average deal size.

For example, a 50/50 split, may include a base salary of $100K with the potential to earn another $100K in variable commissions if targets are achieved. 

When attracting top sales performers, it’s important to provide an uncapped compensation plan that doesn’t limit the rep’s earning potential.

Establish Fair and Attainable Goals

Your company’s compensation plan should reward sale reps based on aggressive but achievable sales goals.

What you need to avoid, especially companies in the early stage of building a sales force, is just setting a random goal based on no past track record of success. This sets reps up for failure.

Establishing realistic goals with a clear path to success will create a high level of motivation across your team while also challenging your reps to push their performance to the next level. 

Keep it Simple

One of the most important rules when it comes to creating a sales compensation plan is to keep it simple. If it takes advanced knowledge of Excel and two hours to explain your compensation plan, it’s probably overcomplicated. Having a simple and easy to understand compensation plan not only makes it easy for the company to manage, it helps sales reps perform better when they understand what they need to do to get paid.

Pay On Time

The frequency with which your company pays incentives is another important sales compensation design decision. Timely measurement of results and prompt payment of rewards for performance are critical for success. Motivation diminishes significantly when there is a long lag between performance and payout.

A well-designed sales compensation plan should align with company goals and sales targets to encourage, recognize and reward exceptional performance by sales reps. Curious as to whether your sales compensation plan needs tweaking? Revecent can complete an analysis of your current sales compensation plan to identify areas of opportunity for accelerating sales growth and empowering your sales force. Request a consult now and start seeing powerful results. 

Revecent is a national sales recruiting and consulting firm specializing in helping technology and professional service companies recruit, build and optimize high-performance sales teams. Our approach centers on four principles proven to maximize sales performance: deploy an effective sales system, hire and develop the right talent, empower teams with the right tools and drive accountability with effective sales leadership.

Contact us today to see how we can help your organization’s sales team exceed expectations.

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