5 Steps to Creating a Balanced Sales Compensation Plan
Did you think that preparing a sales compensation plan was extremely difficult? Actually, it isn’t. However, there are some intrigues involved that make it trickier than determining a salary range for the rest of your employees who are in non-sales posts. The dilemma is always in determining a balanced plan where you aren’t overpaying your salespeople or underpaying them. This keeps most business owners wondering, “How much should I pay my salesperson?”
A lot of business owners often wonder 'How much should I pay my sales person?'. Here we outline how you can create a balanced sales compensation plan with five (5) easy steps.
1. Determine your business profit goals and the budget for paying your sales team
In a healthy business, the sales team should be generating enough revenue to pay themselves and give the enterprise a profit. When trying to determine whether to use a salary or commission-based model of payment, first figure out how much sales revenue your company should earn in order to realize the desired profit and have some amount for paying sales staff. Use business accounting metrics such as gross sales profit (GSP), cost of goods sold (COGS), and sales compensation expense (SCE) to make a sound judgment on the profitability of your company.
2. Evaluate Your Sales Job Factors
There are various factors that will influence a sales pay structure. By evaluating these factors, you understand the condition your salesperson will be working in and you can come up with a fair pay plan for them. Besides, you can actually justify your offer using these factors when interviewing a candidate. Such job factors include:
- The prevailing market rates for sales positions with similar roles
- The total leads a sales person is expected to generate
- Do they do all the work alone or does the company do some marketing to help the sales rep generate and close deals?
- The level of after-sales support a sales staff is expected to give
- Required industry experience and knowledge for success in this post
- The average length of the sales cycle
3. Decide on the Sales Quota and Suitable Compensation
When setting individual sales quota, make it realistic. Let it be results that most salespeople can attain with reasonable human effort. In this case, don’t just consider the results of your top sales performer, but also the average ones. However, opt for stretchable goals. You may use different pay rates to push your sales reps to perform better.
The most important thing here is to give a fair market recompense for every salesperson reaching their goals. You may find out what other companies with similar sales roles are offering and use that as a benchmark. It’s always helpful to tie your compensation structure to performance. Finally, don’t forget to assess your sales compensation expense against the budget you had set in step 1 above.
4. Choose a Pay Structure
In the previous point, I mentioned something to do with using a compensation plan to encourage sales staff to work harder. This is why you find that most compensation plans for sales staff involve commissions. You can choose to use abase pay plus commissions, or commissions only model. See a detailed look at the different payment plans here.
5. Consider Additional Benefits
Did you know that even the smallest details of a compensation plan can make a difference? Most salespeople value benefits like car allowance, club membership, health insurance, Paid Time Off, expense reimbursement when on business trips, and others. These can actually make your compensation plan standout and see you net some of the best talents out there.
There are different aspects that go into the success of a sales team. Among these aspects is a good compensation plan. It’s not only your blueprint for managing salespeople’s pay, but also a powerful tool that can influence how they perform. Follow the above steps and design a compensation structure that will help your business achieve the desired sales goals.