How to Design a Successful Compensation Plan for Your Sales Team

Every sales executive knows that having an engaged, productive and highly-motivated sales force is vital to the success of their organization. We cannot stress enough the significance of creating and implementing a compelling compensation program to adequately reward every member of your sales team.

Developing well-thought-out and competitive compensation packages will help you land and retain top talent, create and reinforce desired sales behaviors, and drive your business forward. Conversely, your failure to design effective compensation strategies may lead to higher employee turnover, reduced productivity and lower profit margins.

Below are a few important suggestions on how to create a strong sales compensation strategy, empower your sales reps and ignite your business.

Align compensation with overall business strategy

A well-formulated business plan should clearly indicate where the company wants to go and how its leadership is going to achieve progress and attain desired business outcomes. Set up your compensation plan to support and advance the company’s strategic and financial goals. Map out a specific course of action to optimize results and achieve maximum success within established time constraints. Also, make sure your sales reps are on board with your business goals and know exactly how their efforts will spur the organization’s growth.

Each sales executive should address the following questions:

  • What steps do I need to take to move the organization forward?
  • What is our target revenue?
  • How long should it take to get to that level?
  • What is the best way to attract more business, revive old leads or increase sales for existing customers?

In addition to sales quotas, you may introduce additional metrics to evaluate performance and assess each sales person. Set realistic targets and avoid putting undue stress on your sales reps while at the same time, challenge them to upgrade their approach, enhance their skills and constantly strive for bigger, better and more impressive results.

If you take it further and offer increased commissions for over-achievement, the results may surprise you. The better the sales person does in exceeding his/her initial goals, the higher the payout percentage should be.

If your company continues to evolve and your business goals change overtime, you should regularly upgrade, revise and modify your compensation plan and make it more appealing to your existing and new sales reps.

Make it easy to understand and execute

Make a point of regularly reviewing your compensation package. Make it as clear as possible, eliminate potential loopholes and discrepancies, and avoid vague language. Intricate performance measures may create a lot of confusion and discontent among your sales reps. Additionally, sales managers should take the time to explain all the aspects of the compensation program and make sure that every sales person fully understands the system, how it works, how it is going to benefit them, and how they can get the most of it. If necessary, schedule a one-on-one session with each member of your sales team and address all the questions and concerns that may arise during your conversation.

Your sales compensation plan should be written, documented and distributed among your sales reps. It should outline your short-term and long-term goals, detail all the benchmarks, performance measures and payout formulas, and indicate what your top priorities are in terms of sales performance, sales results and customer service.

Avoid lowering your compensation in a down economy

Keeping great talent is cheaper than finding it. Even if market conditions continue to deteriorate, suppress the urge to save money and trim down your compensation package. The reason is simple. The cost of losing top sales people typically outweighs potential savings. Besides, top producers usually know other sales superstars, and in business the word gets around fast. If you start revising and reducing your compensation packages as soon the going gets tough, your reputation will suffer and you will struggle to regain your momentum, win trust, and attract top talent in the future.

Don’t just focus on dollars and returns

There are non-monetary benefits that may inspire your sales people to exceed expectations and bring even more value to their team. Even small gestures of appreciation (i.e. movie tickets, gift cards, weekend trips and dinner invitations) can lead to a higher level of job satisfaction and improved morale, and ultimately result in positive cash flow.

While financial compensation is important, some sales professionals place a high value on professional growth and would appreciate ongoing training sessions, continuing education, sales coaching, computer courses and other incentives that would help them polish their skills, stimulate their minds and advance their careers.

Furthermore, if you explain to your sales candidates that you have all the crucial tools they need to succeed (i.e. the latest technology, effective CRM system, ongoing coaching and support, powerful and well-developed marketing engine to attract new business, etc.), they are more likely to join your team and stay for the long haul.

Bottomline: One of the biggest challenges sales executives face is designing and implementing effective compensation packages and finding ways to incentivize each sales rep. A compelling, well-thought-out compensation plan can have a profound influence on sales outcomes and encourage even some of the best, most driven and productive sales reps to intensify their efforts and deliver higher value to their company. It’s essential to keep in mind that creating compensation packages is a part of the organization’s sales strategy and should NEVER be taken lightly. The amount of time, energy and thought you put into the process will ultimately determine your financial standing and affect your level of competitiveness in today’s marketplace.