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Sales compensation plans vary based on the level of risk taken by the company and the sales representatives. The higher the risk taken by the sales rep (lower base salary), generally the greater their earning potential. The lower the risk by the sales rep (higher base salary), the lower their income potential. Generally companies try to provide incentives that motivate and encourages sales reps to sell. Many factors may determine how a company designs their comp plan, yet most plans fall into four basic plans.
Four Types of Sales Compensation Plans:
Salary: A steady base salary with no incentives. Often used for Account Management positions that do not require new business development, yet require a high level of customer service and relationship building with existing accounts. With no incentive pay, reps may not be motivated to upsell.
Commission: 100% incentive based plans are often used by companies that want to avoid risk. Common among industries with high turnover. And, often used by companies that offer reps a lot of autonomy and low accountability.
Salary + Commission: Base salary plus commissions is a blended plan that provides sales reps with security of a set pay amount each month with opportunity to earn more as sales are achieved. Base salaries vary across industries and company size, ranging from $30K to $80+K. Targeted total comp expectations often range from $50K – $150K+.
Draw Against Commission: Essentially a base salary plus incentives plan, yet commissions are received only for the amount that exceeds the draw (salary) paid. Often used when the sales cycle is long and the intent is to reward top performers at the highest level. Generally you will see the commission percentage higher than the percentage in a salary plus commission plan. Draw amounts vary based on sales quotas.
Learn more about how to structure a plan that works best for your sales team.