3 months ago
August 20, 2019

9 Types of Sales Compensation Plans to Consider

Sales compensation matters. The sales industry is unique in the way professionals are compensated. Depending on the company you work for, the industry, and what you are selling, how you…

Kourtney Savona

Sales compensation matters. The sales industry is unique in the way professionals are compensated. Depending on the company you work for, the industry, and what you are selling, how you get paid can vary significantly. There are many different types of sales commission plans. Some work great for one company but not for another, and there are countless ways you can shape commission plans.

To be successful, commission plans need to benefit both your employees and the organization. In this blog, Toronto sales recruiters discuss why sales commission plan selection matters, outline the common types of sales commission plans and provide you with tips to build a great sales compensation plan.

Why Sales Commission Plans Matter

The sales commission plan you choose to implement will have a large impact on how your sales team operates and performs. You want to create a commission plan that will not only motivate your sales reps to sell, but to also help your business achieve performance goals.

Your sales commission plan should provide a clear understanding of business objectives and direction for the sales team. Therefore, you need to choose the system that is right for your business. No two businesses are alike, and you need to consider many different factors when creating a sales commission plan that makes the most sense for your company.

Types of Sales Commission Plans

There is no one-size-fits-all sales commission plan. But there are many types of commission plans you can choose from. Here are some of the most commonly implemented types of sales commission plans used today:

1. Straight Salary/No Commission

This is the most common type of compensation plan used today in most industries. It’s exactly as it sounds – you are provided with an annual salary with no commission. There may be an annual bonus attached to company performance. While it’s easy for the company to structure payroll, it does little to incentivize employees to sell more.

2. Salary Plus Commission

This is one of the most common types of commission plans used in the sales industry. Employees are provided with a base salary and are then paid a commission for each sale. They are incentivized to sell more to increase their pay. The commission rate can be a percentage or fixed fee per sale. Salary and commission structure varies by company.

3. Commission Only

Commission only plans do not have a base salary. Sales reps are only paid when they make a sale. There is no guaranteed income. If a sales rep doesn’t make any sales, they do not get paid. While they are simple enough to manage, it can be challenging to attract salespeople to work in these roles. The reps who do take on these roles often have a ‘sales at all costs’ mentality, which could hurt your relationships with your customers.

Toronto sales headhunters discuss types of sales compensation plans.

4. Draw Against Commission

This is a type of commission only plan. Employees are provided with a pay advance at the beginning of each pay period, which acts like a form of base pay. At the end of the pay period, this amount is deducted from the commission the employee has generated. It operates as a form of a cash advance. The main issue with this plan is employees could actually owe money if they don’t sell enough.

5. Profit Margin

Sales reps are paid a commission based on how well the company is doing. Your salary can fluctuate up and down based on overall company performance.

6. Territory Volume

This is common in companies that take a team-based sales approach. Total sales for a given territory are tallied up at the end of the sales period and sales reps are paid commission equally. For example, if a company has 5 reps working in a territory and they sell $100,000 of business during a pay period, each rep receives $20,000.

7. Capped Commission

Sales reps are provided with a base salary and the opportunity to earn a commission. However, the commission amount is capped at a certain level. It limits how much commission you can make. While it makes it easier for companies to budget, once sales reps reach their cap, there is no incentive for them to keep selling.

8. Performance Gate

You will receive a higher commission rate the more you sell. There are a number of compensation tiers and you are rewarded for better performance.

9. Set Rate

You receive a specific dollar amount per sale. For example, you will receive $100 for each sale of product A, and $50 per sale of product B.

Tips for Building a Sales Compensation Plan

Here are some important tips from Toronto sales headhunters for building an effective sales commission plan:

1. Consider the desired actions:

Choose a commission plan that encourages good sales habits. Set up your commission plan to reward the types of actions that will help your business. For example, if you want your company to sell more of package A than package B, offer a higher commission rate for package A

2. Choose the right commission rate for the action/industry:

Choosing the right commission rate is extremely important. It can also be very challenging. Commission rates can vary significantly based on your company, industry, and what you are selling. You also want a rate that will reward reps well but also not cut too much into company revenue.

3. Pay regularly:

Sales reps want to be paid consistently. Pay out commission regularly to encourage desired behaviours. Getting commission on each payment is motivation for your sales reps to continue to sell at a high rate.

4. Built-in bonuses:

Bonus payments are a great way to further reward your sales team during top sales periods. It gives them extra incentive to meet important sales metrics.

5. Be upfront:

It’s important to be completely transparent with your sales team about how the commission structure works. Make sure they understand the goal and reasoning behind why the commission rates and structure are in place.

 

Read More About Sales Commission Plans and Compensation

Get more insightful information from our Toronto sales recruiting experts about sales commission plans and compensation:

5 Tips to Create a Sales Incentive Program That Works

Top 5 Common Ways Sales Professionals Are Paid

5 Common Misconceptions About Sales Compensation

Top 4 Ways to Structure Your Sales Compensation Plan

Pros and Cons of Different Types of Sales Compensation Plans

7 Good Sales Incentives to Motivate Your Sales Team

5 Creative Sales Incentives for Your Sales Team

How to Build a Better Sales Compensation Plan

How to Set up an Effective Sales Compensation Plan

3 Reasons Why Your Sales Compensation Plan is Holding You Back

 


SalesForce Search is a Toronto sales recruiting company which specializes in the recruitment and placement of sales professionals. We recruit salespeople in every sector of the economy including, software, manufacturing, financial services and medical devices. Find the right salesperson for your organization, start your search here.

Kourtney Savona

Kourtney is a top performing Sales Recruitment specialist focused on helping clients hire the best sales candidates in the market. With 4+ years of experience, she specializes in recruiting Rockstar Sales Producers and Sales Leaders across North America. With a personal background in Telecom Sales, Kourtney knows what separates a good salesperson from a great one. On weekends you’ll find her skiing, golfing, and working out.