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Sales Incentive Compensation Target

Sales compensation structures: commission vs target plans

by stacy

Any salesperson will tell you that when they’re seeking new possibilities or assessing their existing position, one of the most crucial aspects to evaluate is their compensation package.

As a sales team leader, you are well aware of the importance of remuneration in terms of attracting and keeping top-tier sales talent on your team.

That is why determining the appropriate sales pay for your organization is critical to your success – you want to recruit the best talent to join your team while also encouraging your current employees to remain with your firm for the long haul.

Sales compensation, on the other hand, can be extremely difficult to get correctly. Would it make more sense to pay sales commissions or to have a greater base salary?

It is frequently the case that salespeople can identify and work around loopholes in your pay and commission structure, so you must strike the correct balance to maintain long-term motivation and profitability for your team.

Commission versus target-based plans

Encourage team members to behave positively.
Establish clear expectations and remuneration guidelines.
Drive results to meet your organization’s objectives.
The optimal structure for your sales incentive plan will be determined by your available resources and long-term objectives.

Depending on their budget, business structure, employee demands, and team targets, one firm may prioritize basic wage and another company may favor commission.

Regardless of whether you use commission structures or not, your sales compensation plan should take into account the specific circumstances of each sales team member as well as their target accounts.

All of the factors that determine a salesperson’s ideal compensation structure include his or her role, experience, length of the sales cycle, and the types of deals that they engage in.

Here are some other considerations to keep in mind while developing your sales compensation plan:

What is the climate like in your industry? What is more important, rapid growth or maturing?
What is your average profit margin on a deal? What is the maximum amount of commission you can afford to pay?
What are the living expenses like in your neighborhood?
What role does company culture have in the success of sales plans?
What do your competitors charge for their services?
5 different types of sales compensation schemes
Compensation based solely on salary
Compensation based only on commission
Plan for achieving goals

Sales compensation structures: 5 examples

Bonus on top of base salary
Here’s a more in-depth look at each of these five sales pay models.

1. Salary-only compensation plan

When you have a salary-only structure, the annual salary of your salespeople is determined by the employment contract that they have with you. This is decided upon in advance of the contract being signed and does not change regardless of how much or how little they sell in the course of the contract.

People benefit from having predictable take-home pay, yet it is extremely rare for sales teams to be compensated only based on a salary. This is because salespeople are less motivated to go the extra mile when they do not receive performance-based compensation, such as commissions and bonuses.

Because there is no incentive or purpose for the salesperson to continue driving sales after they have met their monthly quota – they will just save potential customers for their next quota – they frequently work at a slower pace after they have met their monthly quota.

2. commission-only compensation plan

Having a commission-only compensation structure is also referred to as performance-based compensation.

This means that you only pay sales representatives based on their results.

For example, if they generate $100k in revenue for a month and their commission portion is 20%, they will receive $20k in salary for that month.

If they do not make any sales during the month, they will receive no compensation.

Commission-only compensation schemes are extremely low-risk for the employer because you only pay your sales force if they are successful and generate income for your company, which is rare. If they don’t accomplish anything, you won’t be able to pay your employees’ salaries since you won’t have any revenue.

Salespeople are also motivated by the commission since it allows them to earn as much money as they possibly can.

Commission-only programs, on the other hand, can make it difficult to anticipate your spending and can also be extremely stressful for your staff, resulting in high turnover and burnout as a result.

3. Target plan

A targeted plan necessitates the payment of your sales force only when they achieve defined objectives or milestones. It is possible to pay $2,000 for each new customer or 10% of upselling and cross-sell revenue generated by a salesperson, depending on your needs. Examples include:

Target Plans are simple to understand for sales reps, and they frequently produce positive results for the organizations that implement them. This is because the output is directly related to compensation, and sales reps are therefore highly driven to perform well.

Nonetheless, when selecting the commission and targets to be set, you will need to think carefully about what would be most beneficial for the overall aims and objectives of your organization.

Consider the following scenario: If you’re attempting to increase the sales of a specific product line or promote a particular promotion, you’ll need to change your compensation and targets for these activities to persuade your sales force to prioritize them.

4. Base salary plus commission plan

At this point, we’ve reached the most common sales compensation pay structure, which is a basic wage with a commission structure.

Your sales force will receive a fixed base wage as well as the potential to earn commissions under this compensation plan.

As a result, your team benefits from the stability of a consistent income as well as the economic motivation to sell.

For the majority of firms, this plan is perfect since it provides greater visibility into your spending (because there is less unpredictability) as well as the potential to attract highly motivated, competitive salespeople.

Employees on a salary may also be required to complete non-selling responsibilities, such as training new team members and participating in training sessions. This is also an excellent method of ensuring that your sales crew is integrated into your entire company culture.

Because of the base salary, the commission percentage is lower under this plan, and the industry-standard is 60:40, which means that 60 percent of the commission is fixed and 40 percent is variable. The employment of a less aggressive sales ratio (such as 70:30 or 75:25) is frequent when sales representatives are required to educate the prospect, as is the case when selling a very sophisticated or technical product.

5. Base salary plus bonus

Another typical compensation structure for firms is the awarding of bonuses in addition to the payment of a base salary. When you choose this method, you have a very high level of financial certainty, don’t have to worry about the high cost of commission payments, and your agents are still motivated to close sales.

For example, you might pay a $40k base salary and a $20k bonus if you sell a certain number of units every year (X target).

To avoid demotivating salesmen by setting unrealistically high goals, it is necessary not to set them too high.

It can also be more enjoyable to earn bonuses at various points during the year to maintain high levels of motivation.

Selecting one of these sales compensation plans for your company is a difficult decision.

In addition, by providing your sales force with an eSignature solution such as SignEasy, you may assist them in closing more agreements. With its seamless and speedy means of getting contracts signed by prospects while also reducing the need for paper, SignEasy is an excellent tool for assisting your sales staff in growing and prospering.

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