A sales compensation refers to a combination of a base salary, a commission, and incentives. All these are employed for the purpose of driving performance within an organization. Meanwhile, a sales compensation plan designates the individual plan for a sales representative inside an organization. It is usually made with specific components and concepts in mind, considering a large array of factors. Today we are going to focus on various sales compensation models and see some examples of plans.
Sales Compensation Models
Naturally, depending on the profile of the company, the number of representatives, the pricing strategies, etc., the sales compensation plan that would be suitable for your business may differ. Let’s see various types of sales compensation models and who uses them:
1. Profit Margin
The profit margin sales compensation plans rely on compensating salespeople depending on how well the company is doing. These are most often employed by startups because they lack liquidities. If you know that the sales people you are working with can support themselves through a rough period, it’s a good idea to use this. Moreover, it is suitable for people who also incorporate some long-term incentives (stock shares, for instance). You can also combine this plan with other incentives or job benefits, such as flex time.
2. Straight Salary
This is not one of the most common sales compensation models, but it’s still interesting to analyze. The straight salary structure presupposes paying the salespeople a straight and competitive salary, just like with the rest of the employees. There are no commissions, no bonuses, and very few sales incentives, if at all.
The straight salary compensation plan is used when the industry you work in does not allow for direct sales. It can also be useful when the sales team is rather small, when they work as part of small groups with an equal contribution, or when they should spend time on other responsibilities as well. However, they are not that motivating for salespeople.
3. Salary Plus Commission
From what it seems, these are the most common sales compensation models in use today. Their structure allows for a lower base salary, paired with a commission pay, which is most of the total compensation. Many organizations use salary plus commission compensation plans, mostly where they can support all the salespeople. Moreover, this is suitable in places where there are appropriate metrics to track the sales. Thus, you can ensure the splits are accurate and fair for everybody.
This type of sales compensation plan is better, as opposed to the straight salary option, because it motivates people to be more productive and to reach their goals. Moreover, it’s more stable, since salespeople will still receive some pay regardless of the conditions. The downside is that it can become quite complicated to administer.
4. Territory Volume
The territory volume sales compensation plan is used in team-based corporate cultures. It works by calculating the territory volume at the end of a certain compensation period. The total sales for that period are split equally among all the representatives that worked on the territory. It’s better to use this plan when you have clear sales territories, when the team supports each other for the common goals and when you have enough profits to hold competitive wages.
5. Commission Only
The last one of the sales compensation models is the commission only one. Just like the name says, you will need to pay the sales people just for the sales they are bringing in. With this, they (and you) have no guarantee of income. Most people prefer this type of plan because it’s easier to administer than the other plans. Moreover, they offer better value for the money, since you rely only on the sales that are achieved.
The downside would be that this type of plan tends to attract fewer candidates, but you can make sure those who are up for it are the best. However, due to this difference in level, they can make your sales team incoherent, fearing for their income. This, in turn, may lead to a high turnover rate and burnout.
Sales Compensation Models and Plans Examples
Now that you are more familiar with the sales compensation models, it’s time to have a look at some plans examples. These are different types of plans, employed in various contexts by different companies. However, they can be a good model to follow if you are performing in the same or similar fields.
1. Merchant Services (Outside Sales)
This proposal for merchant services sales compensation plans consists of the following:
- Lease commissions: $125 – $450;
- Front bonus for each account: up to $200;
- One-time bonus: $200 for each activation;
- Starting commission rate: 40%, with the possibility of increasing it to 60$ with enough accounts;
- Selling: 6 -8 locations a month, which results in $100,000 plus residuals.
- Signing bonus: 50%, plus 15-25% lifetime residuals;
- Lifetime residuals: 25 – 40% for a customer lifecycle, 401k after 90 days, medical insurance after 90 days, etc.;
- Starting base salary: $32,000, plus 3% commission on the total sale, etc.
There are also other benefits and incentives, but this depends on each company.
2. Cable Internet Door to Door
Usually, in this case, the compensation plan starts at 100% commission, and $130 – $140 for each contract. Other benefits are:
- Average sales: $162 (for AT&T), up to $250 (for DirecTV);
- $1000 base salary + 15% residuals or 100% commission, 50% first month, 15% residuals;
- Sign on bonus: $500;
- Health benefits – after 90 days, etc.
The prices for the companies we mentioned are in use at the time of the writing of this article.
To draw a conclusion, there are at least 5 sales compensation models you can use to decide on your business. Moreover, we presented above a couple of plans examples for cable Internet door to door and outside sales. The choice of a certain plan needs to consider a lot of factors: from the industry you’re working in to the character of your sales team, the conditions and the personal motivations of the staff.
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