Four Types of Sales Compensation Plans
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November 29, 2018Sales compensation plans vary based on the level of risk taken by the company or the sales representative. Generally, companies try to provide incentives that motivate and encourages sales reps to sell. The higher the risk taken by the sales rep (lower base salary), generally the greater their earning potential. The lower the risk taken by the sales rep (higher base salary), the lower their income potential. Yet, top sales reps with high quotas ($750K+) may require a respectable base salary in addition to an incentive plan that generate $150K+ in total compensation. Many factors may determine the best plan for your company, yet most plans fall into four basic types.
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. So, bonus plans or SPIFs may be helpful.
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 $40K to $80K+. Targeted total comp expectations often range from $60K – $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.
To learn more about how to structure a plan that works best for your sales team, give us a call at 317-578-1310 or email info@safarisolutions.com
1 Comment
Hi Ann – Very informative article! Having a sales compensation plan that make sense for all parties is crucial in every organization. We also wrote about the same topic here: https://www.leadfuze.com/sales-compensation-plans/