The art of selling is always tricky. But there was a time when the concept of selling was simple enough. You hire someone to sell a product, then give them a cut of the sale. Easy peasy.
Nowadays, however, the selling biz is chock-a-block with fancy terms like roll-ups and tiered commissions and ramp-up periods and KPIs and incentive overrides and — well, you get the idea
Of course, every term serves a crucial purpose, and exists to simplify today’s intricate and complex sales structures.
That said, we thought we’d prepare a list of the most commonly used terms for quick reference — a sales jargon ready reckoner for you and your team.
Now most of you might know most of the terms listed below. But we’re pretty sure neither of you will know all of them.
Want to prove us wrong? Then read on to test your sales knowledge.
Sales Glossary: Common Terms and Their Meanings
Commission
A form of variable pay given to an individual by his employer in return for making a sale or performing a specific service.
Example: Bill gets $160 for selling $2000 worth of goods. The $160 is his commission based on a pre-decided percentage of the sale value.
Compensation Management
It involves designing a well-rounded compensation structure to provide monetary benefits to your employees.
It includes salaries, incentives, bonuses, spiffs, etc.
Sales Incentive
Sales incentives are financial or non-monetary rewards given to salespeople for selling a certain amount of goods or services.
Example: For every 10 sales she makes, Jessie will get an additional $27.
Incentive Plan
Incentive plans are structured strategies for keeping employees motivated and rewarding them for meeting or exceeding specific organizational objectives.
Rewards can be in the form of company stock, bonuses, sales commission, etc.
SPIF (or spiff)
SPIF stands for Sales Performance Index Funds.
It is a short-term incentive given to salespeople to push the sale of a particular product or service, or to drive sales in general.
It is given apart from incentives and commissions.
Example: $347 will be given to each team member if we sell 550 products of ‘X’ this month.
Bonus
A sum given to a salesperson over and above his/her wage.
Usually, bonuses are given for good performances. But some companies also dole out bonuses when they earn a hefty profit or when their market cap increases.
Sales Quota
A particular target that a sales rep / sales team must achieve within a specified timeframe.
Example: Arun has to sell 39 subscriptions before the end of October.
Sales Goals
Sales goals are set targets a sales team must achieve, and are usually aligned with macro organizational goals. Sales goals can include sales targets, lower churn rates, or even simply motivating the sales team.
Examples: 4% reduction in sales cycle length; $500,000 revenue increase per quarter.
Decelerator
It means lowering the commission rate if the sales quota — or a certain percentage of the sales quota — is not achieved.
Example: Chris has to sell $5000 worth of products. He has to achieve at least 80% of his quota to earn a 10% commission. If not, the commission rate will go down to 7%.
Accelerator
As you might have guessed, this is the opposite of a decelerator. Accelerators are incentives given to salespeople who exceed their sales quota.
Example: Tom will get a 7% commission up to $2000 sales. If he sells anything beyond $2000, he’ll get a 9% commission.
Clawback
It means recovering the money already paid to an employee.
It can happen when a buyer returns a product, or when an employee breaches certain terms of their contract.
Incentive Freeze
Here, the system freezes all calculations at the end of the incentive calculation period. That could be a month, quarter, or year depending on the frequency of incentive payout.
Any CRM changes, new invoices collected, or other changes after the date of the freeze will have no impact on the incentive calculation for that period.
Deal Sharing
Just as it sounds, it means sharing the commission between sales reps who collectively worked on a deal.
Oftentimes it might be unclear which rep should get how much credit and eventual commission for that deal. This is where a pre-decided sharing system (nature and volume of product sold in that deal, the region of the buyer, etc) or managerial intervention will help.
Of course, in the absence of a fixed system, the reps can also come to a mutual understanding on their own terms.
Incentive Override
Some deals are more valuable than others. And so sometimes managers might feel compelled to go above and beyond system-generated incentives to reward reps with additional incentives.
This is a double-edged tool, though, and can be used positively or negatively.
Individual Contributor (IC)
Someone whose variable pay is based solely on their performance, unlike managers whose variable pay is based on the team's performance.
Sales Representative
A person who sells products or services for a company. In short, they are called sales reps.
They can sell to individuals or companies. They can also sell in-person, like at retail shops.
Sales Development Representative
A person who qualifies an inbound lead and converts them into meetings for the account executives' team to handle.
Business Development Representative
A person within the sales team tasked with bringing new clients through cold calling, cold emails, etc.
A BDR is generally the company’s first point of contact for clients.
Account Executive (AE)
A person who handles existing customers’ needs on a day-to-day basis, and also helps bring in new business for the firm.
Solution Engineering
The people who are responsible for supporting the AEs with the correct solution design and suggestions to close a deal.
Customer Success
People in customer success are responsible for ensuring a customer keeps paying and buying more via upsells and cross-sells.
Some companies call them account managers (AMs).
Account Manager (AM)
A person in charge of managing sales and relationships with specific customers.
Revenue Operations
It's a team that coordinates the working of sales, marketing, and customer success operations.
They are responsible for operations throughout all revenue-generating teams.
Revenue Target
The ideal revenue figure the company wants to achieve.
Example: Amazon wants to make $893 million in revenue this year. $893 is its target revenue.
Attainment
A percentage of sales achieved concerning a sales target.
Example: Jasmine’s quota for Q3 is $10,000. She has reached $3000. Her attainment is 30%.
Roll-up
It refers to sales credit rolled from one person to another based on their reporting structure.
It occurs when one receives credit for a sale and reports to a manager who also receives credit from the same sale.
Recurring Commissions
The money a salesperson receives whenever his/her referrals make a purchase.
Flat Rate Commissions
A fixed commission received by a salesperson, regardless of the purchase price or any discounts.
Example: Peter gets a flat 7% commission for selling deodorants for $15 each. He’ll continue to get a 7% commission even if the price drops to $12 each.
Tiered Commissions
A type of commission in which reps get an additional commission if they sell a specific amount or more than that.
Example: If Jamshed sells $50,000 worth of goods, he’ll get a 7% commission. If he sells $100,000 worth of goods, he’ll get a 9% commission.
Marginal Commissions
Marginal commissions, unlike regular commissions, also factor in the expenses involved in making / selling a product.
Example: Let’s say you sold a product for $50,000. The cost of building that product and the expenses involved in selling it totaled $20,000. $30,000 is the net profit on that sale. If your marginal commission is 5%, you will earn $1500 on that deal (5% of $30,000).
Event-based Commission
Event-based commissions are useful when you want your sales staff to prioritize customer relations over revenue or profit.
Example: Commissions on resolving customer issues, attending optional client management programs, etc.
Ramp-up Period
Ramp-up period is the time taken by a new salesperson to reach their optimal efficiency.
Example: Rachna was hired on July 1. By September 30, she is selling a commendable $10,000 worth of products compared to $500 when she was hired. In this case, the 3-month period from July 1 to September 30 is her ramp-up period.
Payroll
The list of employees that receive remuneration as well as other work benefits from the company.
Payroll can also mean the total amount of wages paid by a company.
Draw
An advanced payment given to sales reps as part of their compensation plan.
Usually, draws are disbursed based on expected future commission earnings.
On-target Earnings (OTE)
The amount of money a sales rep expects to earn after hitting their sales target.
Example: Joe’s annual base salary is $100,000. He gets a 10% commission if he sells X number of goods for that year. So, Joe’s expected OTE once he completes his quota will be $110,000.
Quota-to-OTE Ratio
It is the ratio between OTE and ARR. Generally, it is considered healthy when the quota is 4-6 times the OTE.
Example: Say a rep’s quota is $500K ARR, while their OTE is $100K. Here, the quota is 5 times the OTE.
Average Recurring Revenue (ARR)
The revenue a company expects to receive from its customers in exchange for providing them goods or services on an annual basis.
Example: A corporate client purchased one of your subscriptions for $20,000 for 4 years. In this case, the ARR for that client will be $5000/year.
Annual Contract Value (AVC)
The annual average revenue per customer contract is called Annual Contract Value.
Example: If you have one customer who signed a 3-year contract for $36,000, your ACV is $12,000. If you have 100 customers on the same monthly plan at $10 per month, your ACV is also $12,000.
Indirect Compensation
Indirect compensation is any benefit to the employee that doesn’t come in the form of cash.
Example: Your company gives you a work laptop, smartphone, etc.
Key Performance Indicators (KPIs)
KPIs are measurable metrics that show how well a sales team is doing in reaching its overarching objectives.
Deciding which metrics to track is crucial because your sales team will also focus on those metrics.
Example: Conversion rates, sales cycle lengths, pipeline value, etc.
Variable Compensation
An incentive based on an employee’s performance. It is given over and above the base salary as a means of motivating and retaining employees.
Example: If you sell 30 subscriptions instead of 25, you could get an additional 2% commission.
Sales Process
A series of steps taken by a salesperson to move a potential buyer from the early stages of awareness to a closed sale.
Sales Activity
All the actions, sales practices, and strategies performed by sales reps and managers to move prospects and customers through the sales process.
Example: Providing a demo of your product, talking to clients, etc.
Conclusion
That's all, folks! We hope you found this list informative and useful.
PS: Did any of you prove us wrong by knowing all the terms? If yes, feel free to drop in a comment below and let the world know what a smarty-pants you are!
PPS: If we missed out on any terms, do let us know and we'll add them to the roster.
