How to Develop a Sales Compensation Plan (with Templates)
Creating a sales compensation plan can be challenging—it’s all about balance, but sometimes that perfect balance can be hard to strike. And, before we get too far in the weeds, we do have free compensation plan templates and examples here to help you better understand best practices for how to set up a compensation plan for each different member, and sales team role.
You can also find a more complete sales compensation plan definition here, but quickly, it details how an individual rep or sales team is to be paid for achieving their 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, but of course, there is more you should know.
Guidelines for Creating a Sales Incentive Compensation Plan
- Include Powerful Incentives: When you’ve been in the incentive compensation field for as long as Xactly, you start to see winning components that work time and time again. One component of a successful sales incentive plan is having incentives that are powerful enough to motivate your top performers. 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.
- Establish Challenging Goals: Do you want your employees to get so used to the easy targets in their plans that they feel entitled to their bonuses just for showing up? A fair goal will push your reps out of their comfort zones, but not push them so hard that morale falters and they get discouraged.
- 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 Rep as Soon as the Deal Closes: If you look at the sample commission plans below, one component that absolutely must make its way in is reps getting their commission as soon as the deal closes. If you wait months to pay your sales people, then the payment is just a reward. It’s not tied closely to the behavior that got them the commission in the first place, and it’s less likely to motivate them.
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. The experts from PayScale have found through their research that “sales leaders want bang for their buck and they are designing their sales compensation plans accordingly.”
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.
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 staff. And, if you can’t get the best sales people on to your team, you are losing out (to competitors). Likewise, if you are constantly retraining because of high turnover, 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, those plans must be clearly communicated and easy to understand. You want to drive the right behavior, so 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. We’ve 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:
Now that you know what you should be doing with your compensation plan, ensure that you’re not making any common comp plan mistakes. Download our eBook, Top Twelve Comp Mistakes.
Designing Sales Compensation Plans
With careful consideration and strategic design, you can use incentive compensation to inspire your teams and empower them to perform above and beyond the competition.