Deciding how to compensate your sales people is hard. There are too many variables, and it's hard to tell which ones matter. Textbooks on the subject often describe three factors that make up any compensation plan:
- A fixed salary component.
- A variable component, that can consist of bonuses, commissions, or any combination of compensation instruments.
- The non-material, 'feel good' component, comprising job title, public recognition, etc.
For a relatively straightforward plan that doesn't compound month over month, split credit for multi-person deals, or need to handle deals in multiple currencies, planning out your compensation structure should be simple (For everything else, there's Compgun!).
Generally speaking, use the fixed component of comp to provide stability, and payment for all the things sales reps do that cannot easily be calculated. In the absence of a solution like Compgun that drastically lowers the cost of calculating variable compensation, the proportion of overall compensation wrapped up in a fixed component is greater; especially so with longer, more drawn-out and nebulously-defined sales processes. If your product has long sales cycles, involves multiple reps and departments, or relies of relationships with long-term customers, you may find yourself paying out a larger proportion of fixed compensation to account executives just to avoid having to calculate incentive-based pay.
If, on the other hand, your product is sold in quick, repetitive cycles, a simple commission structure might at first glance work best. The danger with these is that sales reps can earn what might feel like "enough" for a period, and not be incentivised to reach further. Often in these cases, a series of delayed accelerators, or increasing commission percentages and fixed bonuses can be used to create ever increasing rewards for high performers. This kind of structure (depicted in the widget below) can be used pretty successfully to mold a lean sales team consisting only of extremely high performers. Use the widget below to do some simple what-if analyses on your reps, and get an idea of what their annual income would look like.
Modelling out your plan
Clearly this little calculator won't do the trick for all comp plans. We're working on a much more sophisticated calculator over at commissions.io that you should definitely check out. Of course, ping us @Compgun? if you've got any questions at all.
And of course, if you have a sales team and a plan that's pretty complicated, or you find that you're spending far too much time in Excel and your inbox, correcting mistakes and trying to work out what you owe your reps, Compgun is almost certainly right for you. We haven't yet found a plan that our system couldn't model simply and intuitively, for teams ranging from two to 500 reps.Request a Demo