How We Created a Sales Program That Balances Compensation and Commission

AS A BUSINESS MANAGER, your focus must always be on sales, which means you have to give special attention to your sales reps. Creating and executing a successful sales compensation structure is key to having a productive sales team.

One of the primary challenges we face with sales compensation programs is properly balancing the amount of base compensation vs. commission. There’s really no black and white answer here, but some basic principles should be clear. For example, if you pay your sales reps a heavy base salary, it may end up eliminating some of their incentive to achieve higher sales numbers. On the other hand, a compensation package extremely weighted to the commission side with little or no base salary may be very challenging for an entry-level sales rep and could prevent them from progressing along a path of increasing sales expertise and eventual success.

We implemented a base compensation program that started rather high in the first year and scaled down over a three-year period to the base salary package. This allowed new sales reps some time to learn the business and land new clients without the heavy burden of having to achieve significant sales numbers right out of the gate.

Some companies develop sales compensation programs that are extremely complex in nature. This is almost always a mistake. Sales reps want to be able to understand and calculate their commissions as simply as possible. Complex programs will typically make your sales team feel like you’re trying to build a compensation program that’s designed to confuse them and pay them as little as possible.

Having said that, a commission program doesn’t necessarily have to be super simple. Our company’s sales structure has a different commission payout for sales that are from accounts over one year vs. new accounts that a rep has recently landed. There’s also a different commission structure if a new customer comes from a “warm lead” – a lead generated from an internal referral – vs. a “cold lead” – a lead wholly generated by the sales rep. Paying out a higher commission on cold leads provides a higher incentive for the reps to generate their own business, which is ultimately more beneficial to your company.

Years ago, when our business was very small, we decided to hire our first sales rep. Our senior shareholder, who had years of successful business experience, asked us an interesting question, “Will you be okay if your sale reps make more money than you do in any given year?” That thought hadn’t even crossed our minds. We gave a rather tepid response, “I guess that would be okay.” He then explained this would be the best possible scenario – that we build a team of sales reps that sell like crazy and, as a result, become highly compensated. That’s how we would grow our business. And as you might guess, it’s exactly what happened.

Don’t forget the nature of a sales rep. They’re a special breed of individual. They’re typically very highly motivated risk takers who are always in need of positive affirmation. Treat them as such and they’ll work hard. Build a compensation plan that rewards them handsomely for high levels of success. Don’t be afraid to add other programs besides compensation that recognizes the high achievers. For years we had the Million Dollar Club, which recognized reps selling more than $1 million per year in sales. I was amazed at how focused each sales rep became on making that club. Yes, we rewarded them with a nice trip or other perks, but it was really the idea of making an exclusive team that drove their performance.