Sales Compensation Models

You’ve decided it’s time to bring on a dedicated salesperson. Early in the interview process, they ask about the comp plan, and you’ve no idea what to say. Let’s discuss some of the pros and cons of different sales compensation models and how you can tailor them to the kinds of outcomes you want for your business.

Compensation Components

Here are the basic pieces of a compensation plan and how they contribute to sales performance:

• Base salary: This represents the guaranteed income the salesperson will receive, without regard to performance. A reasonable base salary is your commitment to the process of growing a sales organization, giving them the runway they need to build a funnel. Most professional services organizations pay roughly 60-70% of total expected compensation via salary.?
• Commission: This is based on 5-10% of the value of the sales’ revenue, and incentivizes closing deals and hit higher targets. Commission encourages continued delivery of deals through the pipeline. Typically in professional services this will be 20-30% of total compensation.?
• Bonuses: Often tied to specific strategic objectives (such as a particular region, vertical, or client type), bonuses constitute 10-15% of overall compensation. Bonuses are an additional incentive to close the right kind of business, keeping deals within a set of parameters rather than just repeating the same old process.

Incentivizing Specific Outcomes

By changing the percentages of the components above, you can incentivize the kinds of deals you get:

• To find new business, raise commission rates and offer bonuses for new clients.?
• To expand at existing clients, create bonuses for cross-selling and upselling, particularly for new services you want to sell (selling these into existing clients is often simpler than selling them to clients unfamiliar to you).?
• To maintain existing clients, keep base salaries stable and offer bonuses for client retention.

It’s important to provided a compensation model that is consistent with the behaviors you’re trying to incentivize from your salesperson. It serves as a constant reminder of where you want your business to go. Tailoring compensation can help get optimum performance for your business and help drive the kinds of growth you need.?

Contact us today!

Ready to optimize your sales compensation plan and drive better results? Schedule a free consultation with us today and discover how tailored compensation strategies can boost your sales performance!