Creating a sales team compensation plan that works can feel like walking a tightrope. You must devise a plan that motivates your salespeople but isn’t out of control and potentially harms your profit.
So what should a compensation plan actually do?
- Motivate your team to get out there and win those deals.
- Ensure your sales people are fiscally responsible.
- Define when and how your sales team gets paid.
- Set clear expectations for your team and company.
But how do you create a comp plan that actually does all this?
We have worked with hundreds of integrators over the years, and the ones with the most successful sales teams incorporate these seven elements:
- A base salary starting at $40K–$60K. This may differ from market to market, but it should be just enough to still motivate performance.
- Commission paid on cash collection, using a sliding scale as shown in the table. A good total compensation target is 8% up to $2 million, then 7% above two million. The commission rate increases slightly (3%, 3.5%, etc) along with an increase in base. This is fair to both the salesperson and the company. (This may vary depending on your area and market, but 8% is a good standard.)
3. An annual quota that is broken down by month.
4. Have a profit threshold in the form of clear gross margin targets in the proposal system instead of compensating based on gross profit.
5. Defined sharing or split with other staff. If a designer helps close a deal, it should be clear what cut of the deal that staff member will get.
6. Clarify how and when your sales team will get paid. Every salesperson should know how commission rates work, their base salary, pay dates, and any other factors that could affect their pay.
7. Have contingencies in place if a salesperson leaves the company with unpaid/unearned commission. Each state has different rules, so do your research to understand how this can affect your company.
In other words, your compensation plans should be simple, quick, and fair.
Proper compensation is key to sales talent retention, increased profits, and company sustainability. These elements help achieve that, plus ensure your salespeople stay motivated, inspired, and appreciated.
If you want to go deeper into what works and what doesn’t in sales comp plan creation, watch the replay of our CI Business Mastery class here.
Matt & the Team