Creating a Sales Compensation Plan That Works for You & Your Team

If you’ve been in business for any length of time, you probably get a little flustered trying to create competitive and fair compensation plans for your employees, especially your salespeople. Pay can be extremely rewarding if it is competitive, or very frustrating if it is not. You see, employees pay close attention to their compensation plans. If you make changes to their plans, your plans may backfire. In order to protect yourself, you need to know what needs to be in a best-in-class sales compensation plan.

Podcast Time Index for “Creating a Best in Class Sales Compensation Plan”

00:28 – Growing Sales through a Best in Class Compensation Plan
02:14 – What is a Best in Class Compensation Plan?
02:53 – Compensation Plan Objectives
04:38 – Putting the Plan together
04:56 – Step 1: Determine the Compensation based on discussions with other Businesses
07:36 – Step 2: Decide which items will be in the final Compensation Package
09:15 – Things to consider when designing a Compensation Plan
11:19 – Continual Evaluation
12:13 – Calculation of Gross Profit
12:41 – As Sales grow, Compensation grows too
13:51 – The reward should be equal to the service
14:01 – Allow for feedback
14:38 – Provide a Living Income and top Compensation to the High Achievers
15:22 – Summary

Benefits of Well Thought-out Sales Compensation Plans

Before you put compensation plans together for your team members, you need to understand their importance. Good compensation plans can:

• Increase team morale.
• Magnify and encourage an outstanding work ethic.
• Reinforce team participation.
• Enhance multi-directional communication through your organization.
• Promote the exchange of useful information.
• Improve the overall sales of the company.
• Increase the business’s gross profit.

How to Put Together Equitable Sales Compensation Plans

So then, what do you need to know to meet those compensation objectives?

Step #1 – Know how much your competition pays its top salespeople.

• Do they pay a commission or salary?
• Is commission based on a percentage of gross sales or gross profit?
• Do other companies pay expenses for their salespeople?
• How do others calculate total compensation?

Step #2 – Decide what compensation and benefits you will offer.

• Take time to consider the long-term ramifications and rewards of your compensation package.
• Have the compensation plan reflect your core values.
• Use compensation to instill loyalty in team members.
• Decide whether you will offer salespeople commission, salary, or salary plus commission.
• Create realistic long-term and short-term benefit/incentive plans.

RELATED ARTICLE: Employee Incentive Programs – Which Best Fit Your Business?

Evaluating Your Sales Compensation Plan Model

As you’re considering compensation and benefits options, keep the following things in mind for your plan:

• Calculate commission based on gross profit rather than on gross sales.
• Increase compensation as sales increase.
• Reward hard workers and producers.
• Allow salespeople to constructively criticize the compensation plan.
• Make sure the plan provides a living income for salespeople.
• Keep the sales manager selling until you reach seven full-time salespeople.
• Re-evaluate your plan often as your business grows and as the market changes.

In order to attract and keep top salespeople, you must offer them a best-in-class compensation plan. It must meet marketplace standards and align with your business’s core values. If your plan promotes friendly competition and loyalty, then you can improve your company’s overall sales which should subsequently increase your salespeople’s compensation. Be fair. Yet, be generous as your team members help you achieve success.

For more information about the information in this article, be sure to listen to the podcast! It is available on iTunes, Stitcher, and many other popular channels.

Also, be sure to check out the next set of articles in the Growing Business Value series: Marketing that teaches you what to look for when promoting your company.