1 year ago
April 13, 2016

Different Types of Sales Compensation Plans

The way that sales people are rewarded for their contributions can fall under many different types of sales compensation plans.

Rhys Metler

In almost all types of sales compensation plans, sales people are expected to collaborate to find and pursue sales opportunities individually, in pairs, or small groups according to their strengths. However, the way that sales people are rewarded for their contributions can fall under many different types of sales compensation plans. Organizations considering a review of the sales compensation plan as well as sales people who are wondering which type of sales compensation plan is best for them may want to become more familiar with the different types of sales compensation plans available.

Straight Salary Compensation Plans

Straight salary is one of the rarer types of sales compensation plans. In straight salary compensation there are no commissions and few, if any, incentives. The salary for sales people working under this compensation plan is correspondingly competitive. These types of sales compensation plans are most often used when:

  • The regulatory structure of the industry in which the compensation plan is being used prohibits direct sales
  • Sales people work districts or regions as teams or small groups and the contribution of each sales team member is expected to be equal.
  • Sales teams are relatively small and responsible for more than selling.

Commission Based Compensation Plans with a Salary Component

The types of sales compensation plans that combine commission with a base salary are the most common types of sales compensation plans. Most frequently, sales people will encounter compensation plans that rely more on commission than on salary to arrive at total compensation. This type of compensation plan is good when:

  • The organization knows that past sales people have done well with the percentage split offered.
  • There are opportunities in the marketplace to support all sales people working for the organization on the commission structure.
  • There are methodologies for tracking sales to ensure that commission splits are fair and accurate.

Territory Volume Compensation Plans

Types of sales compensation plans that work by calculating territory volume are most often encountered in organizations that have a team-based corporate culture. At the end of the compensation period, the total sales for a given territory are calculated and the commission is split among all sales people who worked that territory, usually on an equal basis. These types of sales compensation plans work well when:

  • The people on the sales team are highly networked and connected to one another to support the team selling approach.
  • Sales territories are clearly outlined so that sales teams are not in direct competition with one another for the same targets.
  • Territories are rich enough to support competitive wages using types of sales compensation plans relying on volume calculations.

Profit Margin/Revenue Based Sales Compensation Plans

The types of sales compensation plans that reward sales people based largely or exclusively on how the company is performing are usually start ups and almost always entrepreneurial. Organizations may rely on types of sales compensation plans based on profit margin or revenue for several reasons, chief among them lack of liquidity in early start up stages and a desire to encourage company loyalty. Such compensation plans are the best fit for:

  • Sales people who are highly driven and able to support themselves over early or lean periods when revenues and margins might not be predictable.
  • Organizations that can also incorporate long-term incentives, such as stock shares, to encourage sales people to look at long term sales and build a valuable sales base.
  • Organizations that have other incentives to attract top performing sales people, such as the work environment and other non-financial attractions like flex time.

Within each of these types of sales compensation plans there are modifications; no two sales compensation plans are typically alike. The type of sales compensation plan that an organization uses, and the type that a sales person accepts, depends on the market and the goals of those involved.

Rhys Metler

Rhys is a tenacious, top performing Senior Sales Recruiter with 11+ 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 two daughters, BBQing on a hot summer day, tropical vacations and cottaging.