The Importance of a Good Sales Compensation Plan

Imagine you decided to go on road trip—woo hoo!—only you didn’t pack a stitch of clothing, you didn’t bother with a map or GPS, you didn’t fuel up the car, you didn’t put in a vacation request at work, and you had no destination in mind. Mentally, you’d be 99 pennies short of a dollar, and you’d get about as far as the end of your driveway before having to stop the car, go back into the house, and get a grip.

  • The contributor who finds and generates leads
  • The one who architects and closes sales
  • The one servicing existing accounts
  • The sales Jo/Joe who does all the above

Money Matters
A good SCP is designed to incentivize for desired performance outcomes. Take a subject-matter expert approach to your SCP and it will pay off: clarify roles and delineate how each contributor can best use his or her time to successfully meet and carry out the goals of the company. At the core of any good SCP is a strong compensation-for-performance model—meaning, the most productive salespeople reap the biggest rewards.

Change It Up
Organizations change and so do priorities. In light of this, corporate leadership should think about restructuring the sales plan yearly to reflect the company’s shifting goals. Each year, organizational aims and priorities should be clearly defined for the sales team so that they know what to focus on. For example, should the emphasis be on…

  • Revenue, or gross margin?
  • Growing existing customer accounts, or bringing in fresh accounts?

When drawing up your SCP, make sure it addresses these essential questions:

  • What is our timeline for paying out incentives? Monthly? Quarterly? Annually?
  • Should we pay salary plus bonuses, or go with a commission-only model?
  • If commission-only, should we provide a draw?
  • Should any portion of the sales compensation be tied to the organization? To the team?
  • At what point is a sale recognized?
  • When are payouts made?

Let Them in on the Plan
SCPs should be carefully constructed and openly discussed with all team members. All applicable provisions (e.g., split sales, new hires, resignations, terminations, etc.) need to be clarified in the plan document. Your plan doesn’t need to be pretty—it shouldn’t be a hot mess either—it just needs to answer any questions salespeople may have and set the team on the path that ends up at the destination called Success.

Keep these things in mind when coming up with your SCP: The good ones are easy to understand and administer; they’re defensible; and, not least, they’re designed to motivate the team. So turn that car right around and go map out your route. The drive’s going to be a lot smoother and the destination will be worth it.