Creating a Customized and Fluid Sales Compensation Plan
And to ensure productivity in an organization without undermining the company’s goals and intentions, creating a sales compensation plan requires thoughtful consideration of many variables: number of GTM team members, average deal value, complexity of sales, selling motion, personnel involved, price model, and many more variables, which can change over a year. But the key is that you should be shaping and reshaping your plan continually based on the current situational analysis, not just replicating an old one. As important is the knowledge of how to tweak such plans as the business landscape changes, lest your organizational objectives misalign and cause you to fall short of your targets. Solutions to all these complex problems lie in the Flow Commission Tracking Software.
Structuring Sales Compensation
Sales compensation plans can use different commission structures to define the rule of the commission. Some of the most popular include:
Base Salary Plus Commission
A common commission structure – particularly in the SaaS space, this structure provides a mix of a base salary along with a commission plan. A 50/50 is usually recommended in the assumption that half a salesperson’s income is taken care of by their base, and then the other half comes as commission from selling income. Some organizations take on a 60/40 ratio, whereby only 60% earnings are from the base salary and 40% comes from variable pay.
Tiered Sales Commission
This is yet another alternative for multiple-rate, escalators, accelerators, or multipliers that also works to effectively reward top performers. This structure allows reps to break into a higher commission rate once they have hit a certain revenue threshold or number of deals.
An example of a tiered sales commission structure is one that pays a 7% commission rate on deals that are equal to $85K in bookings. Once a rep crosses $85K, they then make 9% on all new deals within the same period.
Single-Rate Sales Commission
This commission structure is also known as fixed-rate commissions, flat-rate commissions or merely commissions. The general framework of variable pay earned off a fixed percentage from every deal closed. The standard commission rate within SaaS generally settles at around 10%.
Best Practices for Commission Payout Structure
With a chosen commission structure, these best practices can further sharpen your compensation planning to be more apt at your business goals and more powerful at driving your reps:
- Encourage teamwork: Operations in revenue, finance, and sales reps should work together so as to come up with the right commission structures in alignment with the business goals.
- Use simplicity: Your compensation plan, including the commission structure, has to be something that may be explained in a very simple way; otherwise, you make the rep confused and hurt their performance as well.
- Propel suitable behaviors: Behaviors that resonate with company objectives and drive their achievement must be rewarded to ensure a goal-oriented compensation.
- Promote impartiality and equitability: Increase sales compensation equity by regularizing your sales compensation plans for every individual in the same role and distributing territory evenly.
- Compensation Communication Plan: Have a clear communication plan in place for your compensation to ensure your team knows and understands the plan, its why, and the backup it provides to reps under the new plan.
Each comp plan needs to be tested by running historical comp data through your new commission structure. Hypothetical scenarios such as a rep doing 400% of quota, should also be pressure-tested to ensure that no bizarre payouts happen to reps. Business can leverage Deal Tracking in Flow to ease the entire process.
Designing a Compensation Plan
Once you have gotten a grasp of structuring sales commissions, the next step is to embark on designing your compensation plan. Designing compensation plans can be done with guided assistance found in Flow’s Custom Commission Flows.
This process includes setting your company goals, analyzing the position in which the compensation plan would be designed for, and finally, establishing your budget. Thereafter, you choose your compensation mix, hence set payout frequency, structure your sales commission, set quotas and performance measures, and initiate tracking and report system. Different sales compensation plans exist, and an appropriate plan can be chosen with the help of our guide examples or through free templates from our library of compensation plan templates.
Sales Compensation Strategies
While developing sales compensation, there has to be proper balancing to reward team performance, achieve business goals, and remain within budget. This will happen by the business plan can be aligned with the goals, through fairness and clear communication during compensations, and other rewards against monetary will turn motivation importance. It’s right to keep checking your plan relevancy such software that will keep up with current trends, like Flow’s Commission Tracking, will make sure that you have the right program to create longevity through the sales compensation plan.
Effective Communication of Your Sales Compensation Plan
The process should be incremental, moving from general overviews of the plan to encompass the entire sales force and incrementally becoming more specific in some parts. In this stage, use multiple methods such as group presentation, 1:1 talks, written documents, and explainer videos to answer the queries of reps and ensure that they fully understand the compensation plan.
Monitoring and Adjusting for Success
The success of your sales compensation plan would be based on some relatively dynamic factors, hence it is a mandate to develop new sales compensation plans every year that may agree and assist in the accomplishment of company objectives. These plans should be drawn with consideration to individual responsibilities, objectives of the firm, and your budget.
Businesses especially stand to gain from such robust solutions as Flow’s Commission Tracking Software in the running and tweaking stages of strategies for ongoing success. Your business, too, can harness the prowess of these innovative functionalities when you schedule a demo or activate your free trial—get started on creating a potent compensation plan today.
In summary, the Commission Tracking Software from Flow is a powerful means by which businesses can effectively manage wider finance and sales operations in order to promote transparency in sales compensation and, thus, lead the team successfully to attaining business goals.