How to Develop a Sales Compensation Plan (with Templates)
Creating sales compensation plans is a challenging task—it’s all about balance, but sometimes the perfect balance can be hard to strike. You need your incentives to drive the right sales behaviors in order to achieve sales objectives. But, before you even begin planning your compensation, you need to ensure your sales territories are aligned and balanced.
At the very start of planning, it’s important to understand what a sales compensation plan truly entails. In short, your compensation plan details how an individual rep or sales team is to be paid for achieving their sales goals, addressing base salary, commissions, and incentives, and then linking these monetary and non-cash rewards with sales performance. The sales commission plan should be tailored to each team role and the corresponding set of responsibilities.
Ready to build a plan? Access ready-to-use templates to get started in minutes. Or, download our guide, "Designing Sales Compensation Plans," for more details.
Creating a Sales Incentive Compensation Plan
There are many parts that come together to form your compensation plan. It’s important that as a whole, your plan can be easily communicated and the structure of reps’ pay is simple and easy to understand. To put it simply, your compensation plan should follow the ABCs of compensation, meaning it should be aligned with sale roles, based on company culture, and constructed to drive the right sales behaviors.
With those points in mind, you can begin designing the different parts of your compensation plan. Consider the following tips in your planning process:
- Include Motivating Incentives: One component of a successful sales incentive plan is having incentives that are powerful enough to motivate your top performers and help encourage mid- and low-performers to improve their sales achievement. If you compensate extremely skilled reps that are working sixty hours a week the same as you compensate a newbie who works forty hours a week, it’s not a matter of if your rock stars will move on, but when. Incentives need to be closely tied to the effort put in to receive them.
- Tailor to Different Roles: Not every role on the sales team is identical. It’s important that your incentive plans and commission structures reflect that. Managers and their reporting reps have different responsibilities–reps will most likely spend more time making calls and closing deals, while managers will likely split their time between calls and administrative tasks. Build your compensation plans so that they provide opportunities and goals that are aligned with the different roles on your team.
- Be Unique with your Sales Incentive Program: Is it more time consuming and difficult to find out what’s important to each of your employees? Yes. Will it pay off to discover which personalized incentives work best for each of your individual employees? Yes again. Different generations have varying needs in the workplace. If your company employs many Gen Y reps additional affirmation and flexibility will go a long way to motivate millennials to reach their goals.
- Don’t Cap Commissions: If you’re in Finance, the above statement might give you a minor panic attack- but sales incentive programs that include commission caps send the message to reps to relax and stop bringing in new deals once they reach their set quota.
- Pay Your Reps Timely (and Accurately): For sales managers, you never want to discover that your reps are spending more time calculating their commissions and trying to double check their payments are correct. Any time spent shadow accounting is lost sales time. Using data-driven, end-to-end sales performance management (SPM) sales leaders can see critical sales data, and reps can see their earned commission in real time. When commissions are calculated automatically, compensation teams can ensure accurate, timely payouts–so everyone wins!
Since there is no denying the tie between sales compensation and motivation, companies need to be certain their best reps are being paid fairly and accurately so they’ll continue to produce at the best of their abilities. With the top-performing reps accounting for nearly 60 percent of a company’s sales, retaining your top talent is critical.
Other Sales Compensation Plan Considerations
So what does that mean for you? When you’re working on your sales commission model, also consider these less obvious influences on your sales compensation plans, and how each one can affect motivating your sales reps.
- Lopsided Base Salary to Sales Comp: Setting your salaries at the wrong amounts, or failing to balance between a sales commission plan and base pay for each role can make it difficult to recruit and retain top sales reps. And, if you can’t get the best sales people on to your team, you are losing out (to competitors). Likewise, with the cost to replace a rep averaging $115k, constantly retraining due to high turnover means you’re also losing out, as your sales team won’t be as efficient as it could be. Morale is likely to suffer as well.
- Complexity of the Compensation Plan: In order for your sales reps to be motivated by their sales compensation plans, their plans must be clearly communicated and easy to understand. You want to drive the right behavior, so it’s important clearly define goals and outline how reps will be compensated when each goal, or percentage of the goal, is met. Explain who else will be paid out on a typical deal, the accelerators or bonuses that are built in, and any other unique circumstances of the plan. The more each individual knows, the better.
- The Number of Payees on a Deal: With our experience in the world of compensation, we’ve seen just about every scenario; but one that is always interesting is the number of payees on a deal. Some companies pay out a couple of people on a single deal while for others, it’s dozens. Our Strategic Services department has found that around 5 or so payees is optimal, and usually includes every individual that was directly involved in the sale.
Sales Commission Plan Template Examples
Putting together a sales commission plan is no small task, and thus, requires full consideration and understanding of each moving part. Here are a few sales incentive pay plan examples by sales team role to help you visualize what your frameworks might look like.
SaaS Account Executive:
SaaS Customer Success Rep:
SaaS Sales Development Rep:
SaaS Sales Specialist:
SaaS Front-line Sales Manager:
Your compensation plan is a key part of your overall sales strategy and planning. When combined with well-designed territories, the right incentives drive key sales behaviors to meet sales objectives and drive growth. Learn more about sales compensation best practices in our recent webinar with WorldatWork.
Complete Guide to Sales Team Compensation
Putting together your sales team requires you to consider the specifics of each person’s tasks, how those responsibilities move the team toward the given goal – and how to properly compensate each member.