Sales compensation plays a critical role for businesses when attracting and retaining talent. Your organization needs to offer your sales team a well-designed sales compensation plan, as this influences a sales candidate’s decision to accept or decline a position in your company and impacts how long sales professionals stay there.
A sales compensation plan typically includes a base salary and sales commission – as these elements collectively reward the behaviors that organizations must promote to enhance the performance of a sales team and generate revenue. However, creating an effective sales compensation plan requires careful consideration of various factors, including the sales team’s structure, the company’s goals, and the competitive landscape.
It’s important to understand what goes into a structured sales compensation plan before creating one. Consider the following steps to create a compelling sales compensation plan to incentivize your sales team and grow your business.
Define the Sales Team’s Structure
The first step in creating an effective sales compensation plan is to define your sales team’s structure, which includes determining each sales position’s roles and responsibilities, the team’s hierarchy, and the expected outcomes of each position. For instance, you may have a team of inside sales representatives responsible for selling low-cost products, an outside sales team responsible for high-value deals, and a sales manager overseeing the entire team’s performance. Each team member’s role and responsibilities will impact their compensation plan.
Once you have defined the sales team’s structures and clearly outlined each individual’s goals, it will be easier for you to determine their compensation based on their level of responsibility.
Establish the Sales Goals
After every member knows their general roles and responsibilities, you must let your team know what you expect from them. This includes identifying the target market, the desired revenue growth, and the products or services to be sold. The sales goals should be specific, measurable, achievable, and aligned with the company’s overall business strategy.
Your sales team’s goals will reflect your company’s overall goals and can include important tasks, such as increasing sales for certain products, boosting customer retention, lowering the company’s expenses, or growing revenue. Identifying short- and long-term goals will help you create a compensation plan best suited to the sales team’s goals.
These sales goals should be influencing the compensation plan, as this will give you a clearer idea of what to offer your employees. For example, a higher sales goal and corelate to a higher compensation. You can also determine how bonuses work with sales goals. For example, will they receive a certain percentage of bonus if they hit a specific goal?
Determine the Performance Metrics
To ensure that the sales team is motivated to achieve the company’s sales goals, you need to determine the performance metrics used to measure their performance. These metrics include sales revenue, new customer acquisition, retention rates, and productivity. The performance metrics should be tied to the compensation structure to incentivize the sales team to achieve their goals. For instance, sales targets could be set and bonuses or commissions could be paid out for reaching or exceeding those targets. Additionally, metrics such as customer satisfaction, repeat business, and new leads generated could also be included in the compensation structure to encourage a more holistic approach to sales.
Another important metric to consider in sales is key performance indicators (KPIs), which modern sales leaders use to measure how close the performance of a sales team is to their goals and how much their sales are growing each month. This typically includes average leads generated per quarter and deal conversion rate. It’s important for your KPIs to be SMART (Specific, Measurable, Attainable, Relevant, and Time-Bound) for them to be most effective, and it requires you to stay up-to-date on changing environments, such as process, technology, customers preference, business, and environmental climate, and consistently update your strategies as needed.
Set the Compensation Structure
Once you have defined the sales team’s structure, established the sales goals, and determined a method to track performance, it’s time to determine the compensation structure. The compensation structure should align with the sales team’s structure and the company’s goals and be competitive enough to attract and retain top sales talent.
There are several compensation structures, including salary, commission, bonuses, and profit-sharing. Each structure has advantages and disadvantages, and the right compensation structure depends on the sales team’s structure, the sales goals, and the company’s financial situation.
If you need help determining the ideal compensation structure for your industry, take the guesswork out of the process and consult a reputable sales recruitment firm. You can reach out to Sales Talent Agency in NYC and share your goals with their qualified team of industry experts to create a reasonable compensation plan. They have a thorough knowledge of the industry and a repeatable, predictable, and scalable recruitment process that they can implement to help you find, recruit, and retain top talent while offering guidance on the compensation structure.
