As we begin a new year, many business owners will consider revamping or creating a new sales compensation plan. It can be one of your most critical undertakings. The best plans serve as strong motivation for your sales reps and help you recruit top producers, which ultimately will boost your bottom line.
Of course, writing a compensation plan is a specialized skill. If you have the expertise, go for it. If not, consider hiring a compensation specialist to work with you and offer suggestions that are tailored to your small business.
Consider these three tips to help you get started:
1. Reward Top Producers
Remember your superstars. Design a plan that recognizes top producers for sales efforts over and above the average.
As an example, let's say your sales staff has a sales quota of $100,000 per month and they are paid a commission of 5 percent per dollar. Most of your reps sell between $103,000 and $110,000 monthly, but your strongest sales rep routinely brings in more than $170,000 a month. Then, you may want to consider paying 7 percent commission on sales revenue between $101,000 and $150,000 and go a little higher – say 10 percent -- for sales above $150,001.
The difference in income is as follows:
|
5 percent commission
|
||
| Sales | Commission | |
| $170,000 | 5% | $8,500 |
|
Tiered compensation plan
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||
| Sales | Commission | |
| $100,000 | 5% | $ 5,000 |
| $ 50,000 | 7% | $ 3,500 |
| $ 20,000 | 10% | $ 2,000 |
| $170,000 | $10,500 | |
The tiered plan will entice a money-motivated superstar to sell more -- month after month.
2. Make Room for Sales Contests
Generally one to three percent of the amount available for sales commissions or bonuses should be set aside for contests. When a sales rep wins a gift certificate to their favorite store, movie tickets or passes to an amusement park, they feel good about themselves, their profession and the business they work for. In my experience, sales representatives typically enjoy longer tenures with companies that sponsor regular sales contests.
3. Don’t Operate in a Silo
Once the elements of your new plan are in place, ask for guidance from a business mentor or fellow entrepreneur who has experience managing a sales staff. They can point out inconsistencies, inequalities or mistakes in your compensation plan. You also want to seek feedback from your sales staff; ask them what changes they would make. You may be surprised at the interesting and fair-minded suggestions that reps will share with you.
After you received all feedback, make the tweaks and finalize the plan as quickly as possible. You don’t want sales reps holding off on closing deals because they’re waiting for the plan to take effect. Once the compensation plan is official, you’ll be sending out your sales reps on a clear path for success. Your entire organization will thank you.
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Comments:
A great resource I found on compensation I found is this ebook: http://www.salesgrowthspecialists.com/compensationcompass/compensationcompass.pdf It's pretty short, but has some pretty good info. Definitely worth a read.
Without a doubt a tiered compensation plan is the only way to go. Rewarding volume will bring more volume. It is that simple. Regards Ron True North Payments INC. Canadian Merchant Account Specialists
i agree that it's such a good idea to go back and revamp a compensation plan every now and then. thanks for posting. Annette C. Sales Compensation
True in papers but difficult to convience business owners to give away discounts or incentive in the time when sales are down or the season is low...I do belive searching for new sales channels will be better..and may have quick positive outcomes with least cost...
bbR44: I've been witness to companies that do not even employ the most basic of tiered incentive structures as per point #1 in this blog. I think it mostly a case of "i don't know what I don't know". This sales comp calculator largely this concept of accelerating commissions above a certain level: http://www.bizcompare.com/resources/sales_compensation_plan_and_calculator/
Useless. If a business owner doesn't know this elementary Sales Commisssion 101, they shouldn't be a business owner. Yawn.
The first suggestion is right on target. The second is bunk put forward by companies who want to minimize pay to their sales people. The concept of making sales people feel good about themselves is hogwash. Most that I speak with would take cash over any 'make you feel good' award any day of the week.
amazing how many (bad) companies miss this, and institute convoluted commission schemes aimed at taking as much away from their reps as possible.