A sales compensation plan is a formal system for rewarding sales representatives based on their performance. It is designed to motivate sales representatives to generate revenue and achieve sales goals, and typically includes a base salary, commission, and additional incentives.
The base salary is a fixed amount of money that is paid to the sales representative regardless of their sales performance. The commission is a percentage of the sales amount that the sales representative earns for each sale they make. Additional incentives may include bonuses, stock options, and travel allowances.
The type of sales compensation plan that a company uses will depend on a number of factors, such as the type of product or service sold, the sales cycle, and the company’s culture.
You can check out Compensation Hub for 20 adjustable compensation plan templates to get started, including commission structures such as: Commission with Accelerators, Commission with Multi-Year Accelerators, and Qualified Opportunity Bonus & Closed Won Commission.
When thinking about sales compensation plan designs, remember these comp plan best practices:
Don’t do it solo.
The most successful comp plans are collaborative efforts that include RevOps, Finance, Sales, even HR. In doing so, you’ll ensure your plans align to your key business metrics and are actually motivating to the reps.
Simple is better.
Leadership and reps should be able to easily explain their sales compensation plans in less than 30 seconds. If they can’t, your plan is too complex. Strive for simplicity.
There are compensation plan communication frameworks you can follow, in fact, you can borrow our example compensation communication plan. Make sure you communicate changes throughout the year, highlight the “why” behind the changes and show the math.
Test and evolve.
Test SPIFs. Test your plan. Use historical data, apply last year’s numbers or plugin industry data. Read this blog for help, How to pressure test your proposed sales comp plan.