Templates and examples
Every salesperson should consider the importance of a sales compensation plan when making the decision to work for a company. To ensure a salesperson’s success, the company must provide guidelines once they have made the decision to join a company. A sales compensation plan that works is not one-size fits all. It is tailored to the needs of each salesperson.
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Sales Compensation Plans – Examples and Templates. Small businesses use sales compensation plans to determine what compensation they will offer their employees. There are many types of plans, including commissions, salaries, bonuses, and they can be very different depending on what type you choose. Here are some sample plans that a company might use to employ a salesperson.
Sales incentive programs and great commission structures are essential to achieve a lot. Customers-facing employees should receive fair compensation through a pay plan and sales commission structure.
It should encourage certain behaviors and activities that are in the best interests of both the company and the customer.
To encourage sales reps to reach goals that will help the company grow while maintaining a profit margin, a strong sales compensation plan is necessary.
What is a Sales Compensation Program? How does it work?
The sales compensation plan outlines how salespeople will be paid for their contribution to the company. The plan will typically include two parts: base compensation and variable compensation. These are often referred to as incentive pay, commission or incentive pay.
In some sales compensation schemes, only commission is paid. In others, base pay is the only payment. Most combine both.
How to make a compensation plan for new sales reps
These stages should be followed, regardless of whether you are starting from scratch or updating an existing sales compensation program.
- Recognize the Essential Requirements for a Success Sales Compensation Plan
- Determine the Role Levels
- Calculate your on-target total earnings (OTE).
- Set a base salary and commission structure for sales.
- Set goals for yourself.
It is important to plan ahead for compensation for training and onboarding.
What should a sales incentive plan contain?
Create a contract to ensure both parties are fully committed. [A TEMPLATE IS PROVIDED]
Step 1: Recognize the Essential Requirements for Effective Sales Compensation Plans
A winning sales compensation plan is win-win-win. It’s easy to implement and benefits all involved. These are five things you should consider when designing yours.
Keep it simple. It is necessary to provide a single page overview of your compensation strategy.
Demonstrate causality. Create a compensation that is directly related to the desired outcome.
- Keep the time between compensation and activity short.
- Fair treatment of all. Compensation must be fair and equitable for all.
- Keep it simple. It should be easy to measure and administer.
Step 2: Determine the different levels of responsibility.
It can be difficult to establish your job levels. To avoid being overwhelmed, create only three levels based on your experience.
- Entry-level
- Baseline
- Top Performer/Experienced
Here’s an example of a basic role that includes the Customer Success Manager (CSM), SDR, AE and Customer Success Representative (AE).
sale-compensation-role-and-level
Table 1 summarizes three titles.
It is easy to distinguish between new, untested workers and experienced workers using these three job levels. You can also give “micro promotions”, which can be very helpful in encouraging employees, especially those just starting out in your profession.
Step 3: Calculate Total Earnings on Target (OTE).
Before you can decide on base or commission-based compensation, you must first decide about On-Target Earnings.
On-Target Earnings: The yearly salary that a person would earn. It is made up of two parts: a basic salary and a sales-based incentive program, also known as variable or commission compensation.
Please note that OTEs can vary depending on where you are located and possibly the industry.
Here is an example of OTE levels used by a Bay Area SaaS firm to recruit sales talent.
SF-Bay-Area-sales-compensation-by-role
Table 2 provides a summary of sales remuneration by location in the Bay Area.
NOTICE: A sales commission should not be called a “bonus”. A bonus is usually offered at the moment but is not guaranteed. A compensation plan, also known as an incentive program, is exactly what it sounds. It’s a plan. It links remuneration with the achievement of specific goals, such:
- pre-determined
- Information about the reward program
- Workers were given clear and concise information
Step 4: Determine a base salary for the sales representative and a commission structure.
Variable pay is designed to encourage a culture of performance where salespeople are held financially accountable for their success.
Leverage is the ratio of sales commission to base salary.
Highly leveraged compensation plans have a high variable and low base pay. High-leverage programs are attractive to executives because you only get paid for the outcomes.
Be careful
This could lead to a host of problems.
For example, top salespeople and senior sales talent may not be interested in applying for credit. Individuals who depend heavily on sales commissions will be penalized by banks when they apply for a mortgage, an auto loan or any other type of credit.
Transactional sales are those where volume is high at low prices and where highly leveraged sales compensation programs are common.
Let’s take a look at some examples. These are examples of compensation schemes that can be used in both high- and low-leverage situations.
sales-compensation-plan-leverage
Table 3 lists the most common leverages.
Your OTE and split between base salary, sales commission and base salary may vary depending on where you work. I recommend that my customers speak to a local recruiter if they are unsure about the expectations of the job market.
Here are some other factors that could influence your pay:
sales-compensation-plans-variables
Table 4 lists the factors that affect sales compensation schemes.
- To give you an idea, take a look at the wages for an AE starting in Mid 2022.
- Base/Sales Commission $80,000 / $80,000 / OTE 160,000 AE is headquartered at Atlanta.
- Base/Sales Commission $75,000 / $75,000 / OTE 150,000 for a Denver-based AE.
AE located in New York/San Francisco. Base/Sales Commission: $100,000 / $100,000 / OTE $200,000
The proportion of commission and base salary will vary depending on the job.
