How Should You Compensate Your Sales Team?
It’s been three years since the successful launch of your business. During that time, your friends and previous co-workers that you’ve haphazardly put together to form a sales team have been putting in long hours on the phones. They’ve just barely met their sales quota each quarter, and everyone makes just enough to keep the lights on.
But breaking even just doesn’t cut it anymore. You’re ready to go further.
Just as you’re preparing to scale a little further, your star saleswoman gets an offer from a larger competitor, and your heart starts to pound through your chest. She says they’re offering her a compensation package that you just can’t compete with, and she starts to pack up her things.
So, where can you go from here?
I’ve seen plenty of small businesses struggle to scale and keep their salespeople around for one simple reason: they’re not paying their team properly. No, I’m not talking about just adding another zero to their paychecks and calling it a day. I’m talking about how the businesses plan to pay them.
There are plenty of options for paying your employees so they have greater motivation to push the needle. I’ve detailed a few of the common ways on how should you compensate your sales team. That way you can not only grow your business, but you can attract more productive salespeople that will blow your current sales team out of the water.
Paying Them Based on Salary Alone
I will say this once, if you’re looking to grow your business, you cannot rely on salaries.
Giving your sales team a quota to meet by the end of each quarter lets your sales team get a bit too comfortable in the workplace. Why push your limits to go above and beyond when you can’t earn any more than you already have?
If you want to keep revenue consistent so you can keep your business and employees above water, salaries are the way to go. But, if you want to push the potential of your salespeople and get your product flying off the shelves, there are much better options.
Using a Commission-Only Plan
A commission-only plan lets you pay your employees based on how well they perform by the end of each pay cycle by paying them a percentage of what they are able to sell.
The main benefit of this payment plan is the scaling potential for your business. Salespeople will work harder if they are offered higher compensation for doing so. Also, it lets you know who is worth keeping around, and who is not worth your time based on how much they earn.
Commission-only plans also add a lot of stability to your revenue. If your salespeople underperform, you won’t have to dish out money they didn’t earn. However, when you earn a lot from their sales, you can reward them with higher pay.
There are however two large drawbacks to this plan: financial inconsistency and a much slimmer talent pool. Unless you have a time machine, you can’t calculate how much your employees will earn in a given month, which can make it hard to budget your expenses. And, there’s the talent challenge. Simply put, most seasoned sales people worth their salt will not go for commission only. Therefore, you are looking at a longer time-to-hire, more in-experienced candidates and not necessarily the best outcome as you staff.
Other Options for Commission-Only Plans
Commission percentages aren’t the only way to use the commission system. There are a variety of options for how should you compensate your sales team.
Absolute and relative commission plans are both based on giving your team certain sales checkpoints to reach by the end of the quarter.
Absolute Commission plans are based around multiple checkpoints such as X dollar amount per new customer or they get a percentage of the upsells they make. Meanwhile, Relative Commission plans let you pay your team when they reach their quota, at which point they get their at-plan commission, as well as a base salary.
While these commission plans help drive your team to push for more sales, this can easily lead to income inequality among your team when you take opportunities and market penetration into account.
Gross Margin Commission
This plan is centered around quality over quantity. You would pay your sales team based on their profit, rather than their total sales.
By using Gross Margin Commission plans, you encourage your team to focus on making revenue for your business and discourages discounting. However, your team must have control over prices and multiple products, and you need to keep track of gross margins to compensate your team properly.
Straight-Line Commission plans are as straight-forward as you could ask for. A sales rep earns a percentage of their commission based on what percentage of their quota they reach. It’s a simple calculation, if a sales member reaches 92% of their quota, they earn 92% of their commission.
The only issue that may occur is when trying to scale your sales outreach. If you are aiming for a 25% increase in sales from this new plan, a star salesperson is more of a financial setback than an underperformer.
There’s Always Something In-Between to Consider
Base Salary Plus Commission
This plan lets you offer your team a normal salary, while also providing them a commission percentage based on their sales.
If you’re looking to slowly and reliably scale, while offering your team a way to keep their head above water, this is your best bet. However, it does not incentivize your team as much as a commission-only plan would.
Base Salary Plus Bonus
This is another safe way to offer your team a bit more of a reason to go above and beyond than a normal salary would. This plan offers a normal pay rate, with added bonuses for hitting certain sales marks. This lets you give your team incentives to shoot for the stars, without sweeping the rug out from under them.
There’s No End-All-Be-All Way to Compensate Your Team
There is no “100% surefire sales secret” that can be copy+pasted for your business and lets you scale overnight. As much as I’d like it to be the case, there are businesses out there that are struggling to stay afloat and keep their heads held high.
But if you really want to stay competitive, and give your team a reason to stick around, it’s all about constantly assessing which options work best for you and your company. Priorities are always changing around, and one plan for how should you compensate your sales team might not work over the course of five years. However, if you keep a consistent strategy and re-assess your team’s needs, that needle will move in no time.