3 Tips for Sales Compensation Plans


3 Tips for Sales Compensation Plans

One of the questions I get asked a lot is about sales force compensation. Not necessarily the amount, but the process.

“How should salespeople be paid?”

Personally, I’m a proponent of a commission-based system. With that being said, I think anyone needs a certain amount of grace period (or training time) until they are “kicked out of the nest”.

But, more than that I want to dig into what to base the commission on. Should salespeople be paid on their sales? A percentage of the profits they generate? Or some hybrid combination?

I think that can vary depending on the industry, though I believe everyone should be compensated based on the profit they generate. I’m concerned about the profit more than I am the top-line sales. (Though I know others may disagree)

Here are a few keys to creating a compensation program that works for everyone:

-Incentive your people to do what you want them to do. By that I mean, make sure their compensation is tied to what is good for the company. If there is a conflict in what is good for the salesperson versus what is good for the company it won’t work.

-The program should be simple enough to explain to anyone. Period. I’ve seen commission plans that were so complicated that it took days to explain and even longer to understand. That does no one any good.

-The plan should reward growth. Don’t limit your people. Don’t put a ceiling on what they can earn or what they can do. They’ll figure that out quickly.

Finally, be flexible. When developing a new program, be flexible enough and open enough with your people to listen to and accept their input.

The bottom line is you (as a manager or business owner) should want to have the highest paid sales team in the world–because they are producing the highest profit in the world. The more you make–the more they make and vice versa.