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How to Create a Sales Compensation Plan?

by Alinamass
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Sales Compensation Plan

The sales team in any organization do one of the toughest jobs of contacting leads and converting them into prospective customers. It can be a gruelling task req uiring a lot of cold calls, emails, personal visits, rejections, exhaustion and more. In order to keep the sales reps motivated to go out there and keep closing deals, a sales compensation plan can be a great option. Here we’ll discuss what a sales compensation plan is and how you can create one for your organization.

What is a Sales Compensation Plan

A sales compensation plan is a detailed and structured program that determines the total earning of a salesperson depending on their performance. Sales compensation typically includes the base salary of the employee, a commission for every sale they’ve done, and a monetary incentive that will encourage the salesperson to work harder and achieve their set quotas. It is a great way of not just ensuring that your sales team are on track and motivated to hit the targets but for increasing sales and turnover as well.

How to Create a Sales Compensation Plan

  • Use a sales compensation planner

A sales compensation planner will help you in drafting the best plan for your sales team. It will consider dozens of combinations and potential approaches for sales compensation strategies. And will provide you with a clear understanding of how much revenue you are generating. And how much will every rep be paid if you followed a certain plan.

  • Determine the goals for your sales compensation plan

No matter which sales strategy you choose to follow, it is important to clarify your priorities. And set end goals to make it easier to decide a way for compensating your salespeople. Your goals should reflect the business objectives and what you hope to achieve from the plan. You can set primary goals like revenue growth, increased cash flow increased retention rate and more for the plan while also setting secondary goals like lowering expenses, attracting target customers, managing the deal flow and more.

  • Choosing a type of sales compensation plan

Once you’ve decided on the end goals, it’s time to finalize. What kind of compensation plan you should adopt in your business. Considering things like the overall budget of the company. The total number of sales reps, the expectation of the sales reps from the implemented plan. And the kind of compensation plan your competitors are using can be a great reference to come with your own compensation plan. It is also important to decide when you’ll be providing compensation to the employees.

  • Select a payroll software

Payroll software is a great tool that can not only help you with normal payments of employees. But can also assist in compensating the salespeople according to the plan. If you are a big company and already have payroll software in place, it should be easy to incorporate. The plans into the software and it will take care of the payments on its own once certain criteria are met.

Must Read: 10 Productivity Hacks for Salespeople

  • Set quotas and expectations

Now that you have created a plan and incorporated it with payroll software. It’s time to set quotas for your sales team and individual reps to give them a target to aim at. Establish the expectations for compensation so that your sales reps know exactly what is required of them. And what they need to do in order to get compensated for their efforts. Quotas can be anything from monthly revenue to sales targets to closed deals. You can follow the bottom-up or top-down approach to figure out the quota.

  • Maintain the compensation plan

Businesses are always changing and business goals are evolving constantly making it important to keep updating the compensation plans as you grow. As your product line changes and the sales team grow, your end business objectives and target will change as well. Thus, you need to constantly analyze and review your compensation plan to see. If it is appropriately aligned with the current market scenario, the strength of your sales team, and the overall bottom line.

For a sales representative whose job is to sell a particular product or service to customers. Added monetary benefit works as a great incentive for them to work even harder. Sales can be an exhausting and tiring process and with different companies offering several perks to their star salespeople. It can be tough to retain your best performers without an attractive sales compensation plan.

There are different ways in which you can offer compensation to your employees. Giving commission on every sale along with a lower base salary is one of the most commonly used plans today. Some organizations work only on a commission basis and pay the sales reps based on the number of sales they’ve done. Bonuses are another way to compensate sales reps as well as the entire sales team for their hard work. Other sales compensation plans include giving a certain percentage of the net profit or offering a certain amount of company stocks to the employee.

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