How can you choose the best sales compensation model?

1 Salary-only model

The salary-only model is the simplest and most straightforward way to pay your salespeople. You offer them a fixed and regular income, regardless of their sales results. This model can work well for businesses that sell low-cost or high-volume products, or that have a long and complex sales cycle. It can also reduce the risk of turnover, as your salespeople have more job security and stability. However, the salary-only model can also have some drawbacks, such as lower incentives, higher costs, and reduced flexibility. You may end up paying more for underperforming salespeople, or losing out on potential revenue from high-performing ones. You also have less control over adjusting your compensation strategy to changing market conditions or customer needs.

2 Commission-only model

The commission-only model is the opposite of the salary-only model. You pay your salespeople a percentage of the revenue they generate, without any base salary or benefits. This model can work well for businesses that sell high-value or low-volume products, or that have a short and simple sales cycle. It can also increase the incentives, productivity, and accountability of your salespeople, as they have more control over their income and more motivation to close deals. However, the commission-only model can also have some drawbacks, such as higher risk, lower loyalty, and more competition. You may end up losing some salespeople who can't cope with the uncertainty or stress of this model, or who find better opportunities elsewhere. You also have to deal with more conflicts and disputes among your salespeople, or between your sales and marketing teams.

3 Base salary plus commission model

The base salary plus commission model is a hybrid of the salary-only and commission-only models. You pay your salespeople a fixed and regular income, plus a percentage of the revenue they generate. This model can work well for businesses that sell moderate-value or moderate-volume products, or that have a medium-length and moderate-complexity sales cycle. It can also balance the benefits and drawbacks of the other two models, as it provides your salespeople with both security and incentives, as well as costs and flexibility. However, the base salary plus commission model can also have some challenges, such as finding the right balance, setting the right quotas, and managing the expectations of your salespeople. You have to decide how much base salary and commission to offer, how to align them with your sales goals and budget, and how to communicate them clearly and consistently to your salespeople.

4 Base salary plus bonus model

The base salary plus bonus model is another hybrid of the salary-only and commission-only models. You pay your salespeople a fixed and regular income, plus a bonus based on their performance against predefined targets or criteria. This model can work well for businesses that sell complex or customized products, or that have a strategic and consultative sales approach. It can also encourage your salespeople to focus on quality over quantity, customer satisfaction over revenue, and long-term relationships over short-term transactions. However, the base salary plus bonus model can also have some difficulties, such as defining the right metrics, measuring the right outcomes, and rewarding the right behaviors. You have to decide what factors to base your bonuses on, how to track and evaluate them, and how to distribute them fairly and transparently to your salespeople.

5 Tips for choosing and implementing your sales compensation model

Choosing the best sales compensation model for your sales team is not a straightforward task. You have to take into account various factors, such as business objectives, product characteristics, market dynamics, and sales culture. Additionally, you must test and adjust your model over time. To help you choose and implement your sales compensation model effectively, here are some tips: ensure that it aligns with your sales strategy and goals, research your industry and competitors to make sure it is competitive and attractive enough to attract top talent, involve your salespeople in the process to ensure transparency and fairness, and monitor and evaluate it regularly for flexibility and adaptability.

6 Here’s what else to consider

This is a space to share examples, stories, or insights that don’t fit into any of the previous sections. What else would you like to add?