9 years ago
May 8, 2015

How to Build a Sales Compensation Plan

Building an effective sales compensation plan can increase profitability and productivity, and help you achieve your corporate and sales goals.

Rhys Metler


The sales compensation plan your company builds for your sales force can literally make or break your company’s profitability and productivity. Create a poor sales compensation plan and you’ll find your sales team being unmotivated and disgruntled. You’ll miss your sales targets repeatedly and you’ll likely have high turnover. But when you invest in your sales team and build an effective sales compensation plan that rewards their hard work, you’ll have loyal, happy sales representatives that try their hardest to meet your sales goals every quarter.

Creating a sales compensation plan that works for your unique company and helps your sales team work hard to bring in revenue isn’t as easy as it seems though. To find a sales compensation plan that works for you, follow the helpful advice we’ve detailed below.

Look at Your Organization’s Goals

Your company isn’t going to be the same as every other sales organization out there. For this reason, you’ll need to create a tailored sales compensation plan that is based on your organization’s unique goals. There is no one-size-fits-all approach to creating a sales compensation plan that will work for everyone. So to begin, consider what results and objectives you’re looking for, what actions can realistically grow your profitable revenue, and which sales compensation approach is best for providing self-motivation. The sales compensation plan should be created based on the answers you come up with to these questions.

Your Options

When it comes to building a sales compensation plan that works, you have many options. Base salaries, commissions, incentives, bonuses—you can use them alone or blend them together, depending on what will motivate your team more effectively.

Team bonuses would be given to all members if quarterly quotas are met—this helps your team work together towards achieving common goals. With profit-based compensation, you change the rate of commission based on increases in margin levels. Revenue or quota compensation is associated solely with the volume of sales or quotas being achieved within a timeframe, and balanced compensation is based on three factors: revenue, margin, and a third aspect like quota achievement.

Using a combination of some of these options could be your best bet. Whichever option you choose to implement, remember to reward your top earners for above average sales and performance in order to keep them happy. Additionally, keep about three percent of your sales compensation budget for sales contests purchases, like gift certificates or event tickets, to give your team a renewed sense excitement a couple of times a year.

You Get What You Pay For

You might want to reduce your costs by capping sales compensation, but in the end, this can be bad for business. If you’re not compensating your sales reps appropriately, you’re going to lose them. You’ll have a high turnover rate, which means you’ll have to pay more to hire and train new workers more often than is needed. But when you hire top talent and compensate them for what they’re worth, you’ll retain them and create a strong, loyal sales team that you can trust and depend on.

Reviewing Your Sales Compensation Plan

Once your plan has been designed, test it out. It doesn’t have to be set in stone at this point. Ask your sales managers whether they see positive effects. If not, refine your plan.

If you’re an established business, you can expect your sales compensation plan to work for you for approximately three years. For start-up sales organizations, it should last about a year. As you grow, your company’s culture changes and your goals and missions shift. And as your organization changes, your sales compensation plan must change along with it to ensure that it stays relevant and effective.

Rhys Metler

Rhys is a tenacious, top performing Senior Sales Recruiter with 15+ years of focused experience in the Digital Media, Mobile, Software, Technology and B2B verticals. He has a successful track record of headhunting top performing sales candidates for some of the most exciting brands in North America. He is a Certified Recruitment Specialist (CRS) and has expert experience in prospecting new business, client retention/renewals and managing top performing sales and recruitment teams. Rhys enjoys spending quality time with his wife, son, and daughters, BBQing on a hot summer day and tropical vacations.