Sales compensation is a type of variable compensation that is paid to sales representatives based on their performance. Sales compensation plans typically include a base salary, commission, and additional incentives. The goal of sales compensation is to motivate sales representatives to generate revenue and achieve sales goals.
There are many different types of sales compensation plans. Some common types of sales commission structures include:
Straight commission: Sales representatives earn a commission on every sale they make. The commission rate is typically a percentage of the sale amount.
Draw against commission: Sales representatives are paid a base salary plus a draw against commission. The draw is a set amount of money that is paid to the sales representative regardless of their sales performance. The sales representative is then paid a commission on their sales, which is used to repay the draw.
Bonus: Sales representatives may be eligible for a bonus if they exceed their sales goals. Bonuses are typically paid in addition to base salary and commission.
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.
We’ve seen arguments made against incentive pay in today’s seller markets, but the benefits to commission and benefits far outweigh the negatives. Sales compensation helps to:
- Motivate sales representatives to generate revenue
- Aligns sales representatives’ interests with the company’s interests
- Attracts and retains top sales talent:
But, it is worth noting some of the challenges, like:
- Sales compensation plans can be expensive for companies, especially if sales representatives are able to close a lot of deals.
- Sales compensation plans can be difficult to administer, especially if there are a lot of sales representatives and the plans are complex. (Good thing you have QuotaPath to automate sales compensation management, tracking, and calculating.)
- The competitive environment it creates can lead to reps cheating the system or sandbagging to maximize their earnings
Overall, sales compensation can be a valuable tool for companies that are looking to motivate their sales team and achieve their sales goals.