Wednesday, April 30, 2008

Q. Compensation for sales people is all over the place. Is one formula better than another?

A. Compensation plans for sales people should be designed to recognize the purpose of the sales force, which is to obtain and retain revenues. With this in mind, any sales compensation plan must be aligned with the revenue objectives of the business and provide a financial incentive to the sales team.
The sales compensation plan must also attract and retain top performers. For a sales compensation plan to be effective, it must provide realistic measurements that link selling success with financial reward. This is important because the ultimate goal for a company is to provide an incentive for those sales behaviors that drive the financial success of the company. Too many companies create sales compensation plans that measure things that have little to do with generating revenue and more to do with administrative tasks. One has to keep in mind that sales compensation plans differ from other employee compensation plans because the sales team's success has a direct impact on revenue.
Most sales compensation plans consist of a base salary and then an incentive piece. Base salaries around the country vary and a good resource to research information is Base salary will also be influenced by the pay in a particular market. If a company is having a hard time attracting top sales talent, complete a review of the competitive environment and make adjustments accordingly. Paying a top performer in sales a larger base salary should pay for itself in revenue generation. Incentives will vary, as well, from a percentage of the base salary to a percentage of revenue and from revenue generated by product class to revenue generated by individual product lines.
Whatever your sales compensation plan, remember it must be aligned with the financial goals and success of the company. It must encourage sales behaviors that drive these goals and provide adequate incentive to pursue these goals. HME