Sales Compensation Examples
Sales Compensation Examples – A sales commission is an incentive that a firm pays a salesperson for every sale they make. Read on to learn how you can create a sales commission plan for your business with examples.
Sales is a competitive profession. To be successful, salespeople must consistently beat the competition to keep your business moving. And to ensure that your salespeople continue to give their best in every fight, you need to reward them for their victories.
Sales Compensation Examples
A sales commission scheme is a monetary incentive that motivates salespeople to meet their sales quota. The objective is simple: grow sales and business by encouraging salespeople to achieve more than they are comfortable with.
How To Set Up A Winning Sales Compensation Plan (with Examples)
With the above in mind, let’s take a look at all the factors you need to work on when creating a good sales commission plan.
In our previous post on Sales Commission Basics, we learned about the importance of sales commission and the different types of sales commission structures. Let’s do a quick recap –
There is no uniform approach to this. What may work for one organization may not suit another. In fact, you can find success with just one sales commission plan but also a combination of several.
For example, are you planning to target a new market, increase revenue by X%, or expand into new territories?
Sales Commission & Compensation Plans: The Key To A Star Sales Team
Based on your sales objectives, prepare the details to build your commission structure. For example, if you are going to expand into new regions, you will want to consider the capabilities in those regions or how established your competitor is in that region compared to your product/service capabilities.
A subpar area may not pay as much commission as a thriving area. A salesperson is regularly hitting quota but is not happy to earn a decent commission when his associate earns only because he has a good territory.
Sales commission schemes are different for different roles. For example, a sales commission plan for a regional manager is different from one for an account manager.
When creating or updating your commission model, it’s important to involve the sales team and get agreement on what will change. You don’t need to please everyone, but you need to include everyone on the sales team to make sure they’re listening. Don’t be afraid to make adjustments if things aren’t working.
Steps To Designing A Variable Sales Compensation Plan
The average sales-to-commission ratio varies by industry. For example, some sectors such as independent contractors may take an aggressive approach to a 100% commission payment structure and no base salary.
On the other hand, industries that focus on consumer education, such as pharmaceuticals, observe a 75:25 salary-commission ratio.
Therefore, the easiest step for you is to identify the base salary for each role based on your company’s goals and recurring revenue. From there, map out the commission threshold you’re willing to pay.
To arrive at a sales commission plan, you need to know how much you can afford to pay a salesperson or account executive. In other words, adjust the OTE.
What Is Incentive Compensation Planning & Management
On-Target Earnings (OTE) is the total salary a salesperson receives for achieving his or her sales target. OTE is made up of base salary, which is a fixed amount, and a sales commission that varies based on sales performance.
For example, if the base salary is $30,000 and the maximum sales commission is $10,000, the earnings at Target will be $40,000.
This means, the seller will receive a fixed amount of $30,000 regardless of sales and up to an additional $10,000 if they have reached the sales goal.
As you receive OTE, make sure it matches industry base pay and commission standards. For example, OTE for an SDR in the SaaS industry in San Francisco is typically between $50,000 and $80,000 per year.
Xactly Incent®: Incentive Compensation And Commissions Management
Work out what you can afford and hope that figure exceeds what you need to motivate them. Then choose which performance metrics you want to base incentives on.
As you plan things, keep in mind what motivates everyone on the team, from the top performers to the bottom.
Be very careful to dig into every possible scenario – you need to make sure you’re still happy if they deliver high on the performance metrics you encourage and fall short in other areas.
Greg Livegood of LC Firm shares how to align sales commission planning with KPIs for account managers:
Incentive Compensation: What It Is & How To Structure A Plan
Don’t offer a variable compensation plan and instead offer a healthy salary and incorporate MBO based on a KPI like a TPS survey to ensure assigned accounts are well served.
Let account managers focus on resolving customer issues and ensuring customers renew their business.”
If you decide to pay based on a variable plan, I suggest setting the salary at 30% or more of the base salary to motivate the account manager and justify the administrative effort.
A typical measure is based on the amount of oversales. I’m usually reluctant to include a renewal action in a project because securing renewal should be an important part of the job (see option 1 if renewal is seen as a core responsibility).
Types Of Compensation: Everything Hr Needs To Know
It is important to note that the sales commission plan you plan is compatible with the company culture. For example, do you encourage teamwork or are your teams better off as individual contributors? Based on this, does your commission structure promote culture?
Lastly, make sure when you pay the commission. Will it be cleared on sales or will they get monthly or quarterly depending on the quota achieved. That way, SDRs can have clear expectations and know how to work to meet their sales quota.
Your structure should have achievable goals, take into account changing market factors and ensure that any extremes in performance do not create situations that could harm your business.
And then forwarding them goes to the account executive to close the deal. At the end of the day, it is expected to bring new opportunities for business.
Incentive Compensation Plan Diagnosis In The Pharmaceutical Industry
When we take the base salary and commission ratio as 70:30, an SDR earns around $3800 as base salary every month, with the remaining $1600 as variable pay.
You can also add more layers on top of this basic commission plan. For example, you can combine this structure with a (base + commission) tiered commission structure. Or, you can introduce quantitative factors like average deal size, pipeline contribution and more.
Depending on your business, you can specify weights for KPIs. In this case, let’s consider a 70:30 load between SAL and pipeline construction.
Apart from finding new opportunities, AEs also have to close deals brought by SDRs. So, on top of the commission scheme discussed above, you can include additional incentives.
Sales Commission Examples For Solar Sales
When we take the base salary to commission ratio as 70:30, an AE earns roughly $5,200 of base salary each month, with the remaining $2,250 as variable pay.
Note: You can also add a limit on how many times additional incentives are offered in a given period.
Finally, once you’ve worked out sales commissions for various members of your team, you need to put all the information together in an easy-to-understand contract.
Therefore, the sales commission agreement is the final step in your commission plan. It sets the compensation guidelines agreement between you and your employees.
Launching New Sales Comp Plans
Make sure you address the following six points to document your sales contract thoroughly:
1. Create a sales commission, in which commissions are earned, paid, and plan to cover the consequences of canceled sales and customer refunds.
3. A non-compete clause that prevents the salesperson from selling on behalf of competitors for a specified period of time after leaving the employer.
5. Documentation That is, the documents and tools you ask the sales rep to use, for example, the CRM your business provides.
Sales Compensation — What’s The Right Salary And Commission Mix?
Remember, each salesperson gets their own sales commission agreement, so a salesperson compensation plan is different from an account executive compensation plan.
It needs to encourage specific behaviors and actions tailored to company and customer needs.
And of course, a strong sales compensation plan with generous sales commissions is needed to motivate reps to hit goals to grow the company while maintaining profit margins.
Variable Compensation Plan Template
A sales compensation plan outlines how you are going to pay individual salespeople for their contributions to the business. Typically it consists of two main components: base pay and variable pay, sometimes referred to as incentive pay or commission.
Some sales compensation plans
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