What is the Right Sales Force Cost?
A strong commission plan has the right combination of base salary and incentives that encourages sales reps and is affordable for your company. One of the biggest challenges when building a sales plan is finding the right sales force cost, or how much to pay your sales reps before commission.
However, there’s no one-size-fits all solution when it comes to paying our sales reps the right amount. Your company stage and industry trends can both affect your sales force cost. Therefore, it is important to focus on your company’s sales force value and how it relates to your costs.
The Importance of Company Size
The size and stage of your business can greatly impact the amount you pay your sales teams. In most companies, the goal is to pay sales reps a base salary at their market value and incent them with a compelling commission structure that will encourage reps to overperform.
However, you should first consider what your company can afford. Paying reps a higher percentage of your total company compensation only works if your company has a sustainable economic situation (marginal profitability of the next sale, cost of supporting the sale, overhead structure, other channel costs, etc.).
It is especially important to know where your company stands to compensate sales teams with the upcoming ASC 606 implementation. Again, there is no magic right number here. The right sales force cost for your company will pay reps fairly and be within your company’s budget.
Competing With Industry Compensation Trends
The most important factor affecting your sales force cost is your ability to pay reps the same or more than your competitors. Understanding how your competition pays and incents their sales teams will help you recruit and retain top sales talent; however, it can be difficult to find this information.
Fortunately, there is a tool that helps gather this information. Xactly Insights for Sales works like a window into your industry, allowing you to look at sales compensation averages (Read more about the benefits of Insights for Sales here).
Combined with your company’s own data, Insights for Sales compiles all industry compensation trends to help you:
- create comprehensive sales incentive plans
- increase sales performance
- attract and retain top sales talent
Prepare for next year with comprehensive resources that will help you design a competitive comp plan.
Sales Force Best Practices
Alongside your company size and industry trends, there are a couple of best practices you can follow to help determine your ideal costs. The average company spends approximately 10 percent of their costs on sales force, but other industries reach 40 percent.
Many companies use different ratios to guide their compensation plans, such as a percentage that sales force cost must stay below. As always, there is no “right” number, and this percentage should be based on your company’s individual situation.
As your business grows, so should the amount you pay your sales reps. With that, sales reps productivity should increase alongside their compensation. Aim for productivity to increase faster than pay, so that over time, sales force cost as a percentage of revenue decreases.
Your sales force costs and compensation plan will change as your company grows and matures. With a solid understanding of industry compensation trends, you can build a simple incentive plan that keeps sales force costs down and encourages top sales talent to perform.
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Ultimate Guide to Sales Compensation Planning
It’s that time of year again. It’s Q4, and you’ve begun the challenging process of designing next year's sales plan. We feel your pain and want you to get the most benefit possible from your sales planning process. Download the guide today to make your upcoming sales comp plan your best yet!