Building a Results-Driven Sales Compensation Practices
Does your sales compensation practices motivate your team to go the extra mile to hit goals? Or are your best salespeople looking elsewhere due to lackluster incentives and rewards? Effective sales compensation practices are critical for retaining top talent, driving improved sales results, and boosting your bottom line.
As an expert in designing strategic sales compensation practices, we have worked with companies of all sizes and across various industries. No matter the business, there are fundamental components that make up an impactful, results-driven sales incentive plan. In this article, learn the key pieces and obtain actionable tips for creating a compensation structure that incentivizes results-driven outcomes from your sales team that are aligned with your company’s goals.
Base Pay Ranges
An often-overlooked element is having clearly defined base pay ranges for your different sales roles. While incentive pay could be a significant portion of the overall total cash compensation, base pay still provides foundational compensation.
Conducting consistent market pricing allows you to set base pay ranges at the 25th, 50th, and 75th percentiles. This enables you to reward top performers with salaries at the higher end of the range, while new hires and developing talent sit nearer the bottom.
Define Clear Performance Metrics
The most critical component is outlining the specific metrics that will determine incentive payouts. Leading indicators for sales teams often include revenue attainment, new accounts secured, client retention percentage, sales activities completed, and customer satisfaction scores.
Select 4-5 key performance indicators (KPIs) that align directly with broader business goals. This focuses your team on the results that matter most. Weights can also be applied to particular KPIs if some are bigger priorities than others.
Incentive Plan Design
With goals identified, the plan design lays out the structure for calculating payouts based on results across your designated metrics.
There are a few predominant options:
- Commission-only: Team members receive a percentage commission for each sale. Easy to understand, yet less flexibility to tie pay to other success factors.
- Goal-based payments: Incentives paid for achieving set team, department, or individual goals. Allows payouts to connect to various results-oriented metrics.
- Hybrid model: Base salary plus incentives and goal-based payment. Provides stability through base pay and additional pay from achieving specific goals tied to your KPIs and organizational success.
-
Assemble Target Incentives
What is the total compensation opportunity for sales team members at various performance levels? Establish target incentives that will motivate and retain your talent bench. Leverage market data to set competitive targets at the below thresholds:
- Threshold: Pay level for meeting the minimum metrics required. If targets are not reached, the payout would be $0 (companies need to stop paying for poor performance)
- Target: The expected level of results. Incentives support a total compensation level that retains fully proficient talent.
- Maximum: Exceptional results warranting the highest rewards. Keeps your top performers loyal to your organization.
Communicate Expectations
Once established, clearly communicate details of the sales compensation program across your team. Provide transparency into the compensation levels required to reach threshold, target, and maximum incentive payouts. Conduct training for managers on how to explain the components. Ongoing education ensures everyone understands how their efforts drive their overall salary potential.
By following these optimum practices, you can develop a motivational, results-driven sales compensation program aligned to your business strategy. The right incentive structure attracts top-level sales talent, retains your stars, and focuses actions on achieving critical goals for sustainable growth.
We would be happy to evaluate your current program and provide recommendations based on optimum practices. Together, we can create a compensation framework that elevates your sales results.
