5 Essentials of a Great Pay Plan for Sales Reps

Want to incentivize your reps to earn more? Follow these 5 guidelines to create a robust pay plan for your sales team.

One of the most frequent topics we address is the pay plan for salespeople. What is too much? What is too little? Why is my sales team unhappy with their pay? Many companies can’t seem to wrap their heads around the best way to compensate their team.

There is no magic number that fits every sales team. Every organization is unique. There are, however, five principles that are essential when it comes to designing an effective pay plan.

1 – Structure the plan so it matches the effort of the salespeople
When a compensation plan is too low, it can be a significant de-motivator. The amount of commission salespeople receive is not worth the effort required. On the other hand, if the plan is too rich, the sales team may be content to coast on fewer sales. They simply won’t be driven to get more leads. Check your competitors, similar industries and the job boards to provide insight for developing your pay plan. Remember, some sales jobs require more effort such as outside sales where prospecting is required. Inside sales, however, receive warm leads from marketing and skip that step.

2 – Put the company’s financials first
The financial health of the company is important. If you’re organization is not making sufficient margin, then your commission structure could be too rich. A fair compensation plan should reward the salesperson if they deliver enough margin to supply the company with revenue needed to accomplish its goals. Start with what your margins need to be and then build your pay plan from there.

3 – Only promise what you plan to deliver
Trust and loyalty are important to the success of a compensation plan. If you establish a commission structure and then change your mind, it erodes the trust between leadership and salespeople. Once you’ve established a plan, stick with it. All too often salespeople (who are successful) get their compensation plan cut because the perception by upper management or the finance department is they’re making too much money. If the sales volume and margins are correct, then salespeople should be free to make as much money as possible.

4 – Drive more earning potential towards performance
Base salary should be just that, a base. Salespeople should think of it as the money needed to smooth out cash flow between commission checks and take care of basic needs. For prospecting oriented people, the base salary should not be the dominant source of their income. You want to drive the incentive plan towards performance – the more they sell, the more they make.

This does not hold true across all positions, however. Farming positions, like account managers, can be weighted towards the base because they maintain accounts rather than acquire new ones. Hunters, on the other hand, are different. A top performer usually wants more commission because they understand the biggest income is derived from acquiring new customers, not from the base salary.

5 – Assess core drivers
What is going to motivate your salesperson? Determine if that candidate values making money and how much. Use an in-depth sales assessment to measure their drive for financial gain will help you determine whether or not they will be driven to engage in the necessary activities. To gain commissions they need to be ready to prospect, qualify, and sell.

The end goal with any compensation plan is to reward top performers and drive more sales. Each of these five principles will help you achieve that goal and foster a rewarding and productive environment for your sales team.