Before setting up and streamlining new processes and plans, it is a good idea to look at all types of sales compensation plans. The industry, type of product, sales strategy and a host of other things will affect the type of sales compensation you may choose for your organization.
Let’s take a look at different ways in which salespeople get their compensation.
Salary only: A straight salary compensation is rare for salespeople. It means that they get a fixed amount as salary and nothing over and above it, irrespective of their performance. Unless one is in a business where commissions make customers wary, it is hard to see an upside to this type of compensation. Such commission plan would usually not have a quota to achieve.
Salespeople love the extra bit of motivation that their performance can bring them more money. However, in certain cases like small sales teams or restrictions due to industry regulations, this type of compensation may be more appropriate. The frequency of this kind of payout can be monthly or bi-monthly.
Commission only: This type of compensation is probably more popular with salespeople who like chasing the biggest targets and getting the highest payouts. In the commission only plan, the sales person gets paid only when the sale is successful with a percentage of the deal amount. Whether the percentage is calculated on the net or the gross amount, would be negotiated beforehand and put in a contract.
Many salespeople prefer this type of compensation over any other as this gives them the most flexibility and more often than not, a higher payout. Real estate, high-end goods, etc. might be some examples of this type of compensation.
Salary plus Commission: The most popular type of sales compensation plan is a combination of salary and commission. A part of the compensation is fixed or assured and given out as salary, and the other part is variable calculated on the basis of their performance. This way, they get a certain amount for sure, and then they have the option to earn more with their performance. It also means that their time and effort gets compensated with the fixed part of the compensation.
In a team, commissions could be tiered or quota based. Each team is assigned a distinct geography or accounts, and their commission derives from profitability and collected revenue. The calculated amount gets distributed among team members, usually equally but sometimes on a pro-rata basis, depending on the company policy.
There are so many ways to create an effective sales compensation plan, just as there are many aspects to consider – such as incentive compensation, sales operations and enablement solutions, sales strategy and business goals alignment, among other things.