SALES COMMISSION can be a tricky practice to dial in. However, I get it— it can be a moving target. If you’re looking at hiring new sales talent or trying to motivate current team members to sell more, it’s probably a good time to dial in sales compensation.
Here are a few key items to keep in mind as you sculpt your sales compensation plans:
1. How much should you pay?
This is different for every business. To understand how much to pay a salesperson, complete an analysis to figure out what amount of revenue each needs to bring in and then base the commission percentages off that.
Commission always should be tied to quota, or how much the salespeople need to sell. Paying on every dollar they sell (or every dollar of profit) isn’t the worst strategy. But they always should be thinking about their monthly number and be motivated to close that amount.
Either way, there should be a base salary component and a variable commission that’s a based payment. A 60/40 (salary/commission) or 70/30 (salary/commission) as most common in our industry.
2. Commission should be tied to the role and the behaviors you’re trying to motivate.
Most salespeople gravitate toward where the money is. What KPI’s are you measuring and tracking for them? What behaviors do you want them to exhibit? It’s not always just revenue that you should be putting incentives behind.
What other metrics are critical to their success? I’ve seen some folks look at customer revenue growth quarter over quarter as another lever to commission on.
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3. Metrics matter.
I’ve talked about quota. Simply put, a salesperson’s quota either is the amount of profit or revenue needed to bring in during a time period (usually monthly). It should be clear to the company and employee what these numbers are. We live in a cyclical business and have seasons where more sales happen. Quota should follow this. Heavily track both input and outcome metrics. Income metrics are activities like calls, emails, in-person visits, or LinkedIn messages. Outcomes are meetings held, new quotes, deals closed, revenue brought in, etc.
The beautiful thing about sales is that it’s a numbers game. Typically, the more activities or inputs, the more sales you get. This takes a diligent approach, however. You must live in the data, communicate it well, and work with the team on a weekly basis to track performance and drive behaviors.
4. Communication is key.
Like everything in dealing with people and teams, communication is key with compensation. For strong salespeople, compensation is one of the most important parts of their work. Solid communication around the plans, changes to the plans, timeframe, KPI’s tied to them, etc. all are critical.
You also should regularly evaluate the effectiveness of the compensation structure. Are the behaviors you want to drive improving? Is the plan fair for the team member and the company? You should be monitoring this on a quarterly basis and make changes if needed.
Earlier in my career, I was interviewing for a head of sales role and, toward the end of the hiring process, we were talking compensation. The CEO said, “I’ll promise you right now that we will mess this comp plan up. Either it’s going to be too rich for us, or it’s going to be too rich for you. But, I’ll also promise you that we will make it right.” This stuck with me, and I’ve repeated it to many salespeople that I’ve hired along the way. As you build out these compensation plans for new or existing team members, I think it’s a good message to keep in mind.