It is no secret that most sales managers and owners struggle to find a great sales compensation plan for the sales team. Quite often these discussions lead to analysis paralysis as proposed changes to the comp plan can create even more questions and what-if scenarios. To be sure, salespeople and leadership do not think alike and have a very hard time seeing eye to eye. Everyone has a different opinion about what is fair, so creating the ideal compensation plan is going to be difficult.
There are a lot of variables to consider for creating your plan which is highly dependent on your business model. Do salespeople create the estimates or just sell? Will your customers become repeat customers? How strong are your profit margins and do they vary across products and services? How long does it take to take a prospect to become a customer and then how long until you have a paid invoice? There is no one plan that will work for every company, but there are certain elements that should in every single sales compensation plan.
- It is simple – Sales comp plans get really murky when trying to account for every single type of sales scenario. This is especially true when salespeople sell different products and services with different margins. Sale plans, at most, should have no more than 2 or 3 variables tied to. Beyond that, it becomes a tracking nightmare for the salesperson, accounting, and management. It is possible that with a fair plan each person may win some or lose some, but in the end, the net sum is a mutual gain for everybody.
- It inspires desire – Successful salespeople should see an easy and attainable path to a 6 figure income that can be sustained by doing a good job for the customers and the company. Don’t create a plan that will starve your team because the good ones won’t stick around for very long. Great salespeople who are appropriately compensated for a good performance rarely quit and never get fired.
- It drives the company’s goals – Don’t implement a comp plan that does not align with the company’s goals. If you want to grow the company, you want a plan that rewards new business. If it is profits, then base your rewards on the margin. Be careful to pick a goal that the salesperson can affect.
- The salesperson can control it – Don’t create a comp plan based on profits if the salesperson does not create the estimate or negotiate the price. It is out of their control and will often leave them feeling unsatisfied and unmotivated. Great salespeople will always work the comp plan and the more control they have over it, the better results you will get.
- It creates trust – Trust is often the biggest gap between the sales team and owners and vice versa. A comp plan identifies activities and results that are easily verified and documented. Commissions, incentives, and bonuses should be a time for celebration for all involved because beneficial results are achieved. If instead, it becomes a moment of stress, criticism, and resentment, then your comp plan may be causing more problems than it is solving.