Multi-Rate Bonus

Vector 628
Ellipse 1037 1 1

Multi-Rate Bonus

Definition: A Multi-Rate Bonus is a variable compensation in sales, in which the level of bonus varies based on achievement vis-à-vis pre-set individual’s performance targets. Unlike single-rate bonuses, which award a fixed sum for every achievement, multi-rate bonuses adjust the pay-out rate in accordance with the level of achievement in comparison with pre-set goals-such as sales quotas, deal sizes, or strategic objectives.

Detailed Explanation

Multi-rate bonuses is a mechanism for structuring the bonuses such that the higher the level of sales above the performance target, the higher the bonus rate. Often, such a system is tiered, such that each level of sales corresponds to a different bonus rate. For instance, there can be a lower bonus rate for the salesperson if he attains 90% of his sales target but a higher bonus if he attains his target of 100% or exceeds it. In this manner, it will breed continued improvement and better performance since the expected payoffs keep rising with the level of performance. Multi-rate bonuses have these major features:

  • Flexibility: This allows the company to provide for several layers of achievement, each with a corresponding bonus rate, appropriate for a number of sales strategies and market conditions.
  • Motivation: Encourages sales staff to achieve higher levels of achievement to gain higher levels of bonuses.
  • Customization: The bonus system can be differentiated and customized according to different roles in sales and objectives, considering any number of sales strategies and market scenarios.

Importance in the Sales Process

  • Incentivizing Over-Performance: Since multi-rate bonuses pay more for exceeding targets, salespeople are incentivized to over-perform the set targets
  • Revenue Growth: Motivating the sales staff to aim at the high brackets of their sales projections can bring about substantial revenue growth over what is normally expected.
  • Adaptability: The flexible nature of this bonus structure allows modification to suit different sales cycles and different types of products, which would be effective in the dynamic environments of the markets.
  • Strategic Alignment: Multirate bonuses align the activities of the sales team with the other business objectives by rewarding key performance metrics critical to the growth of the company.

Real-World Example

Imagine a software company where a multi-rate bonus system is implemented in order to stimulate sales of a new product. The sales force gets a 5% bonus for meeting up to 100% of their target sales, 10% for meeting 101% to 150% of the target sales, and 15% for achieving more than 150% of target sales. This is a plan where a salesperson who achieves their target qualifies for a standard bonus. However, the more a salesperson exceeds their target, the higher the bonus rate becomes, which will greatly lift their overall compensation. Think of a car dealership where a salesperson gets a $200 bonus for each car sold with a limit of 10 cars, $300 for selling 11 to 15, $500 for every car sold after 15 in a month. In other words, this is a tiered bonus, which provides incentives for a person to sell more cars in order to reach higher brackets of bonuses, making the overall sales performance better.

Make Commission Tracking a Breeze! Sign Up Today!

15-day free trial. No credit card required.