Your business is doing great, and it’s doing great because you have dedicated professional sellers on staff who are closing deals. You’re happy with the team and the work they put in, so much so that you’d love to reward them for their great service. But when you look at the numbers—comparing what everyone is bringing in versus the costs to the company—you have to stop for a minute.
As great as your team is—does your sales compensation plan cost your company too much?
What Is a Sales Compensation Plan?
First off, let’s get on the same page regarding what a sales compensation plan is and why it’s important. In short, your plan is a combination of an employee’s base salary, commission, and any bonuses used as incentives that make up said employee’s total earnings. The plan is usually structured to encourage better performance and increase the company’s revenue. For example, a salary is kept rather low because there are ample opportunities for commissions—if a rep gets out there and closes deals.
Compensation plans, regardless of what form you choose, drive sales behaviours at your company. At the same time, how you choose to portion salary versus commission versus bonuses can have large impacts on your company and bottom line. Choosing an appropriate balance is essential.
Determine Your Business’ Goals
Before you can determine if your sales compensation plan costs you too much, you need to know what your company’s business goals are. If you don’t know what your company needs to succeed, it makes it impossible to judge anything else. At the same time, you should determine what kind of budget you have for sales compensation; this gives you the number you’re trying to work within.
What’s the Going Rate?
Once you have your business’ success numbers, it’s time to take a look at your industry. How much are sales reps getting paid at other organizations? Is it salary or commission based? If you want to pay reps a lot less than the going rate, you have to accept you’re going to lose the best people to competitors.
On the flip side, if it’s going to cost you all your profits to pay even one top-level performer, then you’re setting up your business for failure by hiring them. The trick is a good balance that keeps your company hitting your goals, while still paying your sales reps enough to keep them happy and loyal.
Individual Sales Goals
Now it’s time to take a look at what your sales reps will be achieving. Do you have a minimum sales goal? If your sales compensation plan includes commission, and your reps are aiming for at least a minimum number, you can know now at least how much commission you’ll need to pay out.
Make sure these numbers are fitting your budget. If you discover that just by hitting their goals, the company’s commission budget is destroyed, then anything above and beyond that will hurt even more.
If you do find that your sales compensation plan is costing a lot, be wary before arbitrarily cutting it down. The cost of turnover on a sales team is often more than the cost of a rep kept on staff. If you start cutting salaries or lowering commission rates, you’ll likely see a loss of productivity and loyalty. That’s why it’s best to really think about your compensation plan before making changes.
In the end, only you can know if your company’s sales compensation plan is costing too much. Every organization is different—from goals and revenue to incentives to keep reps on staff. It never hurts to crunch the numbers, compare them to your goals, and see where you’re at.
Posted By Author Mike Lieberman, CEO and Chief Revenue Scientist
Mike is the CEO and Chief Revenue Scientist at Square 2. He is passionate about helping people turn their ordinary businesses into businesses people talk about. For more than 25 years, Mike has been working hand-in-hand with CEOs and marketing and sales executives to help them create strategic revenue growth plans, compelling marketing strategies and remarkable sales processes that shorten the sales cycle and increase close rates.