What Is Sales Compensation?
What Sales Compensation Plans And How To Create One; It is rather important to reward top-performing employees to keep up their motivation.
Sales executives must get rewards for their dedication and achievements.
“Sales compensation” is a kind of reward. Sales companies provide it to sales executives based on their performance.
So, what actually sales compensation is?
It is a combination of base salary, incentives, and commissions.
Sales compensation helps to encourage the sales executives for their outstanding performance. Thus, the company can expect high performance from them in the future as well.
In addition, sales compensation is a customized plan for your company. However, it needs many aspects to take into consideration.
It needs a thorough analysis of an employee’s track record in the company.
For instance, it includes the contributions of an employee in the entire sales cycle.
In addition, the seniority level, and sales engagement types need consideration as well.
It is not the end!
You need to focus on many other aspects before calculating the compensation.
Do not need to worry! You will get to know everything in this post.
Approx 1/3 of organizations are not satisfied with their respective sales compensation plans. It implies you need to devote enough time and interact with your team well.
There is no general strategy to calculate sales compensation.
Different companies have different goals, customer base, sales executives, etc. So, the compensation changes accordingly.
Your plan will be different from that of your friend’s company.
Even when the job role differs, the plan needs a change accordingly. That means you must have a different plan for different sales employees.
That is why you need the support of sales compensation management. It will help you to supervise compensation plans.
Ensure whether or not the performance of a rep helped to achieve your business goals. Take the help of sales compensation management.
Adding incentives to your sales compensation plan can boost the growth of your company. Thus, executives will get the motivation to improve their performance with time.
In short, sales compensation will help you to encourage them.
However, you already know the plan needs to be different for different team members. The person, who has shown outstanding performance, deserves the best. So, the incentive will be high in this regard.
Not only it will encourage that person but it will also motivate underperforming employees.
What are the other roles of sales compensation?
It will boost the mindset and behavior of your company’s sales executives. Even it does influence every professional, from junior-level to senior-level.
Do you want to improve your sales business’s growth? Then, sales compensation can act as an excellent driving force.
It also works as a management tool for your sales executives’ performance. Thus, you can boost the confidence level of your employees.
It will help your company to achieve more success in the long run, even in complicated projects.
So, the essence is to design a correct sales compensation plan. Such a system of reward helps professionals to put more dedication and achieve excellence.
Also, this rewarding structure helps to improve employee loyalty.
You need some great minds for your company, right?
Sales compensation will make them feel that yours is the best company for their career.
What is the key benefit of targeted sales compensation?
First of all, it will boost the success of your sales company.
Secondly, it will streamline the tactical customizations of your company.
Thus, you will be able to adjust it all around the year, as per the changing market patterns.
Do you want to facilitate the entire process? Yes?
You can take the help of a best-in-class compensation planning tool.
Such a tool will let you grasp thorough insights into the entire scenario.
In addition, it will help you to boost your plans regarding sales compensation. And you will no longer need to depend on your instincts in this regard.
How To Create A Sales Compensation Plan?
Now, the most important question arrives. It is how you can create an ideal sales compensation plan.
You can divide the entire strategy into the actionable steps below:
Figure out your business goals regarding sales compensation.
Reach a conclusion about the compensation plan type.
Determine when you are going to offer compensation.
Opt for a top-rated payroll software program.
Fix quotas as well as expectations for sales compensation.
It is time to grasp the insights into each of the above steps:
How To Align Your Business Goals With Sales Compensation?
Are you up for designing your sales compensation plans?
Then, the first step is to determine your goals. You must be clear about your business mission.
The second part is about creating an alignment of your goals with your compensation plan.
Here, you need to set up your business priorities.
As a result, you can roughly calculate the compensation plan for your sales force.
What’s more?
The plan must fulfill your unique goals, requirements, and expectations.
Take a look at the examples below to make your goal-setting process easier:
Top-Priority Goals For Sales Compensation Plans
Boost revenue
Improve the average size of business deals
Enhance cash flow
Boost customer loyalty
Up the rates of repeat clients
Some Other Parameters To Fix Goals For Sales Compensation Plans
Alleviate expenses
Lower the frequency of discounts
Compel target customers
Lessen average size of discounts
Efforts to sell some specific products
What Kind Of Sales Compensation Plan Do You Want To Design?
Congrats! You have completed the first step.
Now, it is time to opt for the most suitable sales compensation plan for your business!
In order to decide about the type, find out the answers to the questions below:
What is your total budget?
What kinds of compensation plans are your competitors using?
What is the count of your sales executives?
What are the expectations of your sales executives?
How your sales compensation plan will influence your sales force?
When You Will Compensate Your Salespeople?
It is also critical to determine when you are going to offer sales compensation. There are three common options to consider. You can choose your preference, according to your business goals.
When Your Company Will Get The First Payment From A Customer
It is the most popular type of sales compensation plan. You can compensate once you receive the payment from your client.
Thus, you can encourage your sales force to focus on only target customers. It will further increase the retention rates of your business.
When A Customer Completes Signing A Business Contract With You
You can motivate your salespeople after a client completes signing the contract.
It will give a feeling to your executives that closing a deal will boost their income as well.
Nonetheless, this strategy may often result in cash flow issues.
Whenever A Customer Completes The Payment
Are you willing to safeguard your cash flow? Then, it is the best option to design your sales compensation plan.
So, you can provide compensation every time you receive an invoice.
However, it can pose complications if you are managing a big team.
Under this setting, your salespeople keep on managing as well as closing sales. Especially, if you do not have a high budget, this plan can create trouble for you.
Therefore, you should opt for some other strategy for your sales compensation plan.
Go For A Payroll Software System:
Have you decided on the goals, type, and payment structure for your sales compensation plan?
You deserve a round of applause! You have completed most of the tasks already.
Now, it is time to opt for a payroll software system. It will streamline the compensation activity.
So, the choice of a payroll software system depends on some aspects:
What is the age of your establishment?
Do you have an HR team to manage pays as well as benefits?
Do you have experience in working with payroll software?
If most of the answers are positive, then it will be a breeze for you!
Thus, you can add new compensation plans to the payroll software.
Nevertheless, are most answers in negation?
Then, you can choose one from the following three options for payroll software. Thus, you can execute your plan with ease. In fact, your selection depends on your requirements.
You can opt for a comprehensive software system.
It will feature HR, payroll, and many other options. It will let you manage the entire payment-centric task from a specific point.
Do you in need of automatic management of payment-related tasks?
Then, search for an option with such automation. So, you can handle your core business procedures with the given space by such software.
Are you tight on budget? Budget-friendly options are also available.
However, you will need to manage with basic features and functions of payroll software.
Fix The Limits & Expectations For Sales Compensation:
Congrats! You have made it to the final phase of the sales compensation structuring.
Now, your job is to fix the quotas for every sales executive, who deserves compensation.
It will also allow you to create expectations of your salespeople. They will get the message that outstanding performance will bring in an extra income scope.
How to decide about the quota? Let’s talk about two key strategies and you can choose one later.
Bottoms-Up Approach:
Here, you need to focus on two aspects. Firstly, it must be the capabilities of your sales team. Secondly, it is the figured-out market opportunities.
These two aspects will let you determine the quota of each of the sales executives.
Try to collect more and more data. And the process will be streamlined for you.
Note that your inputs will differ with the product as well as sales types.
Take the help of the following parameters to facilitate the bottom-up strategy for you. It will further help you to fix the quota with ease.
ACV or average contract value
Count of sales executives
Average revenue for each sales-executive
Count of qualified leads (track it monthly or quarterly)
Qualified lead percentage that closed
The aforementioned aspects will let you fix the count of deals an executive must take up. It further helps to design a convenient quota.
P.S. Your salespeople will become masters in their skills over time. As a result, they will start closing more and more sales.
Accordingly, you will need to change the quota to be accurate. Hence, a periodic overview is a must to be on track.
Top-Down Approach:
This strategy lets you amalgamate market data and your business revenue targets.
It will clear the goals of your sales force. They will understand what they will need to achieve to get compensation.
Hence, you need to set a specific amount of closed deals. It must comply with your business goals.
Upon achieving or crossing that limit, the salespeople will be compensated.
Before reaching the conclusion on compensation quota, find out the ideal OTE.
Additionally, you will need to calculate the number of executives in your team.
How To Maintain Your Sales Compensation Plan?
A big congratulation if you have designed your sales compensation plan.
However, it is not the end of the scenario!
You should know the art of maintaining your sales compensation plan.
Remember, your business goals will change with time.
The size of your sales force will also grow.
The level of competition and product line will keep on changing as well.
So, do you think the same sales compensation plan will work forever? Absolutely not!
You need to tweak it, according to the changes in the key parameters.
So, a continual review and analysis must be in place to ensure the relevancy.
What will be the result?
You can keep the motivation and happiness intact.
You can make sure that your sales compensation plan will bring more growth to your business.
Note that there is nothing like perfection in a sales compensation plan.
Your goals and priorities are on a loop of constant change.
Even your sales executives are in the search for new opportunities.
Moreover, your clients will keep on changing their preferences and choices.
In short, the entire scenario is constantly changing.
Your job is to channel your sales compensation plan with these changes.
It must comply with your business goals, requirements, and resources.
It needs to increase the odds of your business success in the long run.
