How to Compensate Sales Reps
Compensation Plans for Sales Reps
Compensating sales reps is tricky. It's difficult to define the right mix of base salary and commissions that will motivate sales reps to maximizie your business revenues and profits. Here are a few things to consider when designing comp plans for sales reps.
Determining the right compensation package for your sales staff is an important part of a successful sales strategy. Unfortunately, it can also be one of the more trying things you will be forced to do as a small business owner.
When designing a sales rep compensation package, the first question you need to ask yourself is what you are looking for in a sales staff. Why? Because the manner in which you design your compensation package will significantly impact the type of people your company will be able to attract and retain on its sales force.
Older, seasoned sales reps tend to prefer a compensation package weighted more toward stability and less toward risk. It's not very difficult to understand why. They are at a stage in life that requires a steady, predictable income stream to pay for mortgages and college tuition for their kids. This translates into a compensation package that has a considerable salary component.
Younger sales reps, on the other hand, are more willing to live and work on the edge. Stability is a concern, but not nearly as much of a concern as career advancement and opportunities for financial gain. For that reason, younger sales people are more likely to go along with a compensation package that is based mostly or even exclusively on sales commissions.
Industry-type is another factor to consider when it comes to designing a compensation package for your sales force. Industries that sell highly predictable products with short sales cycles can more easily acquire quality sales staff with a commission-based compensation package than can industries with less predicable products and longer sales cycles.
This means that people who sell retail, food service, insurance, and other similar products can more easily be compensated by commission than can those people who sell products such as technology, telecommunications, and consulting services. For the latter group, the time between the initial contact and closing the deal can be substantial - sometimes as much as six months or more. During that time, they will need to be paid a fairly large portion of their compensation as salary just to help them pay their bills.
Another factor in designing a compensation package for your sales staff is your company's stage of life. In startup companies, it may take a little time for the sales staff to develop contacts and roll-out your product lines to your customer base. During that time, they will need to be compensated primarily by salary rather than by commission. That may change when the company gets on its feet, but until then it is the only way you will be able to retain a viable sales force.
Ultimately, a little research can go a long way. Ask around. Find out how other companies in your industry compensate their sales force and then design a compensation package that is right for you - and for your salespeople.
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