5 Best Practices in Developing a Sales Compensation Plan


Creating or redesigning a compensation plan for a sales team is one of the most challenging parts of owning a business. It requires all hands on tech, with contributions from HR, finance, a sales manager, and someone from the field to ensure it’s a plan that works for the entire company. There is no one way to design a compensation plan – every business is different and everyone has different goals and plans that work for them. As you determine how to move your business forward, follow these five best practices in developing your compensation plan.

  1. Have Clear Goals

When you know what you want, it’s easier to get it. Understand where you want your company to go, so you can design your compensation plan around those goals. For instance, if you want to bring in $1 million in new business, how many deals will you need to close to get there? How many opportunities will you need to actually close those deals? How many leads will you need to generate those opportunities? Determine if you prefer a few larger contracts, or more from smaller companies. Decide how important it is for you to get long-term contracts, or can you handle short-term deals.

Tying individual performance parameters to a company’s broader growth objectives is crucial for the success of any sales incentive program. It provides clear marching orders to your team, and everyone knows what they are working toward.

  1. Know Your Team and How They Work

You need to have insight on the members of your team and what their preferences are, as well as the structure of their sales. If the sales person plays a critical role in getting a customer to buy, they should be rewarded appropriately for winning that sale. If you want your team to sell more of a certain package, a commission boost for selling that package would be smart. And if your team is signing fewer big-ticket clients, then including a salary will help even out their income over the year.

Determine what you want your sales reps to do – and what they’re good at- and be certain that your incentive program is in sync. Know what motivates your team and plan accordingly.

  1. Think Outside The Box

Your company’s compensation plan is yours alone, so feel free to get creative. Consider non-cash rewards, like trips or nice dinners. Those can be just as appreciated as money for the right employees!

Contemplate a tier-based system that rewards your high-sellers with a larger commission percentage, which can encourage your beginner sellers to step it up.

Maybe you want to go more extreme and try a 90/10 commission structure. This can be highly motivating for your sales team, and will attract new salespeople who are attracted to this format. You could get your most aggressive year of growth ever!

4. Don’t Cap It

Under any circumstances, never place a cap on the amount of compensation someone can earn. If a salesperson reaches their quota, and there’s no more commission for them, they might not be motivated to make that sale until the next month. Why would you want to encourage reps to stop performing once they reach their payout limit?

  1. Make it Simple

An overly complicated compensation plan will just become a headache. Keep it simple and make it easy for reps to clearly see where they stand at any given point. When the goals and rewards are well-defined, your team will spend less time negotiating and more time selling. Plus, their performance growth will feel tangible and like something they can control.

The right compensation plan can motivate salespeople not only to sell more, but also to act in ways that support a start-up’s evolving business model and overall strategy. Create a company culture that encourages sales and happy employees with a compensation plan that works for everyone.

How do you prefer to structure your plan? Let us know in the comments.

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