Compensation Plan: One Size Fits All?

Determining your sales team compensation plan does not happen over night.   When developing a plan, do not expect to see great sales results by copying a competitor’s plan.  The idea of a one-size-fits-all compensation plan does not work.  A compensation plan of 30% base combined with 70% commission is very typical, but it may not be right for your company.  These plans need to be unique to your products or services, sales reps experience, and company sales goals and profits.  Consider these ideas when developing your comp plan:

• Established sales reps generally want a higher base while new sales reps can be brought on board with little to no base salary.
• If your company is well known with few competitors, establish a higher base (50/50 mix).
• If your company has multiple competitors, consider a 20/80 mix to push sales more aggressively.
• Base salary should only cover a sales rep’s basic living expenses.

Remember that a rep’s commission is generally a percentage of either revenue or gross profit generated over a short period of time.  Consider using a combination of flat and ramped commissions.  A flat payout rate could apply to less profitable products or services while a ramped commission rate could be used for more profitable product lines.

Source: Business Week