Salespeople are the lifeblood of any company, but for a small business, they can mean the difference between growth and stagnation, or worse, growth and failure. The elements you put into your sales team's commission structure can motivate your team to excellence. It all depends on how you build it.
Key Elements of a Commission Plan
A good sales commission plan takes into account the following three major elements:
- Role: What role does the salesperson play in the customer's decision-making path? Is your salesperson a major or minor player? If your salesperson has a big influence on whether a customer buys an item, consider offering a higher commission.
- Sales Type: Maintaining relationships with existing customers and adding on sales is easier for most salespeople than acquiring new business. Consider rewarding new business at a higher rate than an upsell.
- Cycle: The business and sales cycle for your industry must also be taken into account. A business selling rapidly consumed items may offer a different commission structure than an industry in which the sales cycle takes many months. Knowing your industry averages and adjusting the commission structure accordingly helps you plan a fair and equitable commission plan.
Align Commission Rates
A crucial element of effective sales compensation plans is to align compensation to both corporate strategy and an individual salesperson's goals. By aligning first to corporate strategy, you can be sure to reward performance that helps your company achieve its objectives. When you link individual goals to compensation, you also motivate each employee personally.
Higher Risk, Higher Compensation
Another major factor in your compensation strategy should be the perceived risk of trying your business' services or products. High-risk products or services may require a significant capital investment, such as an office-wide computer system, new telephone infrastructure or custom software development. The higher the risk a customer takes to try you out, the harder it is to make the sale. The more effort needed by the salesperson, the more he or she should be compensated.
Commission Structure Best Practices
To develop a solid commission plan for your company, use the following best practices gleaned from many small-business commission plans across a wide variety of industries:
- The majority of companies that offer commission plans offer a base salary plus commission. This helps you retain the best salespeople and bolsters them against the lean times that come to any salesperson, such as economic downturns that may affect your industry. Better salespeople are attracted to a base-plus-commission structure.
- Conversely, commission-only plans are viewed as too risky by seasoned salespeople, so many avoid them. You may experience high turnover if you try this route.
- Add sales contests and special bonuses for top salespeople as additional performance incentives.
Creating a unique commission structure for your small business isn't necessarily easy, but with the right structure in place, you can attract and retain top salespeople, helping your company grow and be profitable.
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