November 23, 2017
One of the many challenges faced
by growing businesses is managing the compensation of salespeople. As a
business owner, you know that the pay structure of a sales team differs from
the rest of the employees. Generally, you need a commission based plan or
incentive based compensationto encourage sales force to generate new accounts
while upselling to existing customers. But, how would you figure out the best
way to compensate them? It boils down to one thing – finding the right balance
between basic salary and commission.
Besides, there are other
considerations too –how would you measure the performance of each sales person?
What would be the parameters for performance? Which pay model to choose – a
commission only or commission + base pay or both?
All these things could seem
daunting at first sight, but once everything is in place, it creates a sales
culture of high-performance. Conclusively, you can prepare a Commission Plan Agreementto clearly
define the compensation and incentive structure.
What components could be there?
Goals
It is the target set for a salesperson
to achieve in a certain period. Goals may be monthly, quarterly, half-yearly
and annual.
Gains
It indicates the achievement of a
sales rep against their goal in a particular quarter or duration. It may also
be presented in percentage.
Commission Rate
Commission is a direct proportion
of revenue generated and a common method of compensating sales reps. What
portion or the rate at which commission is paid is decided by the firm
considering their revenue and other factors. For instance, it could be 5% of
monthly target or revenue.
Commission Tiers
Sometimes, commission rates could
varyon thebasis of gains and revenue. For instance, 5% commission against gains
between 80 to 100% or 7% commission against gains between 101 to 150%, and so
on.
To avoid disputes, companies can make use of
sales commission software and set up a fair commission plan agreement to let the sales process flow smoothly.
