The Ultimate Guide to Sales Compensation Planning

What is Sales Compensation?

Sales compensation is the monetary compensation that an individual receives for sales performance. It is used to incentivize and reward sales people for their efforts. There are different types of sales compensation such as base salary, commissions, and bonuses. There are various factors that determine what type of sales compensation a company offers to their employees such as the type of industry and the level within the company. Sales compensation can be either variable or fixed in nature with variable compensations being more common.

Why Start with Sales Compensation Planning?

Sales compensation is the way that one company pays its sales team for their efforts. The two most common methods are salary plus commission, or commission only. Salary plus commission is the easier of the two to administer, but it doesn’t always give salespeople an incentive to exceed expectations. Commission only does a better job of incentivizing top performers, but it can be harder to manage because you have to track all commissions earned and paid out each quarter.

Companies need a sound sales compensation plan if they want to maximize revenue and profits. To do that, they need to start with a good plan in place from day one.

How to Implement a Successful Sales Comp Plan

To create a successful sales comp plan, you need to analyze your company's sales objectives. If the company is trying to increase its total revenue, then it will be necessary to offer an incentive for salespeople who are able to achieve this goal. Moreover, it is important to focus on the salesperson's individual performance. A successful compensation plan should not only focus on the volume of the sale, but also on the quality of the sale.

What are the Components of a Good Sales Comp Plan?

A sales comp plan is a strategy designed to incentivize and motivate the sale force. The goal is to create and maintain a motivated and productive sales team that can increase profit margins. According to a Forrester  article  written by Seth Marrs, the following are the “Six (6) Components of Effective Sales Compensation Plans”:

  • Compensation Charter
  • Plan Design
  • Target Setting
  • Deployment
  • Management
  • Governance

Conclusion

Sales compensation plans are the most important element to any marketing mix, which makes sales compensation planning of utmost importance as well. One cannot simply implement a compensation plan without doing the necessary research and spending time talking to the people involved.

The sales compensation plan is a strategy that a company uses to motivate its employees to sell their products. So when a sales compensation plan is done right with the appropriate planning, it can result in motivated sales people and in more revenue for the business.