This means that, more often than not, if a sales rep hits the exact quota, theyll earn the exact commission amount associated with it (plus their base salary). Based on budget, amount of reps, and the teams expectations, identify the type of compensation plan that works best for your business. What they give is what they get. Its finally time to take action. Senior managers will set specific sales goals for staff and, when account managers achieve those goals, they receive recognition, additional compensation and other rewards. How to find the right incentive compensation Incentive compensation management software. Businesses use the gross margin commission plan if their reps are offering discounts to customers to hit their quota. It promotes a company culture driven by performance and accountability for your own results. Your salary would be your base pay, and potential bonuses and commission make up variable pay. Over time, this compensation plan offers predictability in terms of expenses for the business and extra incentive for your reps to close a certain amount of deals within a certain time period. This allows plan creators and managers to optimize those plans and try out new, innovative ideas. The framework of a sales compensation plan will vary from business to business. Because sales compensation plans often involve some variable pay thatll be under the control of the rep, incentives will only motivate them further. These products and services are often more expensive, therefore leading to increased sales and earned incentives for the account manager. Because reps can only make commission when they make a sale, that means whenever they get commission, the business also brings in revenue (which is good). 2022 Anaplan, Inc. All rights reserved. With a commission-only plan, the stakes are high. Your time is valuable. Because Beths gross margin is higher than Matts, she will make a bigger commission. Typically, commission is given in addition to a salary. The best way to explain gross margin commission is with an example. Sometimes, avoiding selling expenses is difficult. Consider the meaning of the word relative. Find out what other companies in your area compensate their employees with similar positions. Good communication comes in many formats, including live presentations, FAQ documents, and online resources like training or how-to videos. Sales reps still have a limit on how much they can make, which doesnt give them any reason to keep selling once they get their bonus. What works today might be wrong for your business in a year. Account managers often develop and participate in sales presentations to encourage additional and new purchases. Commission acts as an incentive to never stop selling, and if that extra benefit isnt there, sales reps might kick their feet up and call it a month once they hit their quota. Being compensated on commission alone also motivates reps to create lasting relationships with customers, which is good for business. To effectively manage incentive plans to drive sales behavior, solutions should include these key features: What-if scenario modeling. They all have their own benefits and drawbacks, and because of that, certain companies will find that one plan is best suited for their team, business plan, and goals. They split their time between administering current plans and modeling future scenarios using data from other divisions in the companyfinance, supply chain, HR, and marketing. Existing customers routinely purchase a stable number of products and services without change. In her free time, you can find her doing a crossword puzzle, listening to cover bands, or eating fish tacos. With the goals and strategy in mind, hone in on your team. This compensation plan incentivizes reps to surpass their quota, meaning it can get expensive for businesses. If a business compensation plan has high variable pay and low base pay, its considered highly leveraged. Check it out and get in touch! Employers may offer a sales incentive structure with additional pay, commission, bonuses, travel and product rewards based on the dollar amount of finalized opportunities. The base salary plus commission compensation plan is a sweet spot for sales reps. They are often part of the sales department, responsible for maintaining current clients and keeping them satisfied. Why have variable pay when you can just lump it all together, you ask? It cost the business $1500 to cover Matts selling expenses, and only $500 for Beth. However, if the rep is incredibly involved and has experienced complications to get the customer to say yes, they deserve a heftier commission. Unfortunately, the work doesnt stop once youve implemented your first version of the sales compensation plan. To help, weve put together an introduction to incentive compensation. In addition, successful plan designs tend to be grounded in a few fundamental principles. With those roles broken down and different levels designated, choose a type of compensation plan. Upselling is a sales process where sales staff present and sell additional and enhanced products and services to the customer. Create a breakdown of the tiered positions and designate on-target earnings for each. Furthermore, the metrics upon which salespeople are measured can become much more complex, and more sophisticated calculations can be performed. These should include all the information in the above reports, as well as operational metrics. These are created at the end of each fiscal period and show the performance of each compensation plan in quantified terms. Incentive compensation is a form of variable compensation in which a salespersons (or other employees) earnings are directly tied to the amount of product they sell, the success of their team, or the organizations success. Sales incentive technology should offer scenario planning capabilities to keep the incentive plans flexible and help the business shift quickly due to market changes and business needs. A few of these changes could include headcount changes, a new industry focus, a revised product roadmap, or revisions to the marketing strategy. Remember to evaluate, review, and modify your plan when necessary. Manager reports. Discussing salaries with reps can be a stressful conversation to have, and you dont want miscommunication to make it even worse. A lot of businesses will use a tiered commission rate, where reps enter a different commission range if they make a certain number of sales/generate a certain amount of profit. Too much commission can cause unpredictability in salary expenses, but on-target earnings mostly made up of base pay wont motivate reps to go above and beyond a certain point. Admin reports. Whichever approach you use for paying employees, make sure you do it on time. If you do end up offering a sales incentive plan in addition to a standard compensation plan, make sure it applies to the entire team. Rapid calculation. A lot of people go into sales because there is that added layer of monetary satisfaction when closing a big deal, and the salary only compensation plan doesnt provide that. For example, a sales rep might make a $40,000 base salary and then receive a $12,000 bonus if they sell a predetermined amount. Make sure each team member knows what is expected of them once you implement the plan. Upgrade your software to expand the capabilities of your compensation plan. There are two ways businesses typically set quotas for their sales compensation plans, either with the bottom up or top down approach. The gross margin commission plan shifts the focus from revenue to actual profit. Francine Richards is a licensed multi-state insurance agent with years of human resources and insurance industry experience. They adapt to evolving company strategies, acquisitions, product launches, and shifts in the market or their customer base. Creating a sales compensation plan is a lot of work and it plays a big part in motivating your sales team to perform well. For businesses, it offers a little more structure to their expense projections because there isnt as much flexibility as to how much people can earn. One would assume that Matt would make more commission here because his sale was bigger. They are listed in the section above, but as a refresher, lets list the options and what goals that plan speaks to specifically. It makes projecting expenses and sticking to a budget difficult, however, they arent taking all of the profits home. Plan effectiveness reports. Sales reps dont have an incentive to sell once they reach their quota. However, the gross margin commission plan would analyze cost before doling out rewards. The Base Salary for a Corporate Account Manager, Average Income of Credit Card Machine Salesmen. Ongoing communication: Clear and consistent communication is essential to ensure that reps understand what is expected of them. With this pay structure, the salary and percentage of commission received will not be as high as the compensation plans that focus on one of those two things alone. These include summary-level metrics around overall performance, pay performance, and cost-to-sales data. A salary-only sales compensation plan is not very common for sales teams. An absolute-commission plan lays out specific milestones thatll result in a sales rep being paid a certain amount of money. We can all agree that payday is the best day. In an ideal world, sales compensation plans motivate teams to work together towards common goals while simultaneously creating a friendly, competitive, and collaborative atmosphere. Shifts focus from revenue to profit, which is better for the business in the end. Sizing and deployment: Ensuring proper headcount in all regions involves a significant amount of data processing. On the other hand, if you want to bring in new customers, absolute commission will help you get there. When setting goals, its always best to have primary objectives, with secondary ones attached. (she/her/hers). If a sales rep doesnt make a sale during a specific time frame, their earnings will be zero. A common concern and problem of using the territory volume commission plan is when some people arent carrying their own weight. Interested in engaging with the team at G2? Problems can arise when certain reps are contributing more than others and see their hard earned money be split with people that arent bringing anything to the table. As the face of the company for customers, they are product experts and offer enhanced customer services. Subscribe to keep your fingers on the tech pulse. This compensation plan will only work for sales reps who work in a very team-based manner and culture, where everyone is striving towards a common goal. If you were a sales rep and you made as much as you possibly could, would you still be motivated to sell? Getting into the nitty gritty details of making a sales compensation plan can make it easy to lose your way. Incentive software must automate complex computations, improve the speed and accuracy of compensation calculations, and reclaim time for value-added activities. A Sales Compensation Plan That Will Inspire and Reward Reps, Tips for creating a sales compensation plan, What It Takes to Become a Great Sales Manager (+Salary), 5 Ways to Tailor Compensation to Increase Employee Retention, IT Executive Compensation Expectations During COVID-19 [Infographic]. An incentive management platform should supply this and other business intelligence, including summary reports and historical audits. Make sure your reps are pleased with their earnings and that the plan contributes to the business overarching goals. Program updates: Use the information gathered from the postmortem to reassess the elements that drive your ongoing plan design and management processes. Often, a simple table with the breakdown will do. Theres a universal love and anticipation for getting paid, but payday for sales reps can look different depending on their business sales compensation plan. After you have the on-target earnings decided and approved, you can further divide it into base and variable pay. Commission is only a percentage. Paying them for other improvementshelping new reps contribute sooner, minimizing no-decisions, decreasing rep turnover, and so onencourages them to focus on these behaviors, making the sales team more effective. A primary account manager goal is keeping his client base. Pay for improvement. When using this approach, a business will typically set a reps on-target earnings at one-fifth of their quota.