Traditionally, a sales executive’s pay comprises a fixed salary component & a variable element.
The fixed portion is the base amount that remains the same for most salespersons regardless of their performance. However, sales compensations are contingent upon the performance of the sales rep. Hence, the combination of pay and compensation influences the take-home amount that a salesperson makes.
Companies calculate and pay compensations by factoring in bonuses, sales commissions, incentives, etc. The value changes from organization to organization, depending on their policies.
This post aims at highlighting the importance of sales compensations and why companies should rollout sales compensation without delays. Let’s dive right in!
Need and Importance of Sales Compensations
According to a Forrester x SiriusDecisions research, B2B businesses spend approximately 20 to 25% of their annual revenue on sales pay and compensation. This trend indicates that companies are serious about rewarding the hard work of their sales executives.
So if you are still questioning the who, what, and why, here’s why companies must pay sales commissions:
1. Delivers Better Results
It becomes apparent that sales compensations play a crucial role in driving the sales team’s performance, which will increase the bottom line.
Companies can mould the salespeople’s behaviours and work ethics by outlining what is important to the organization. When your sales reps are aware of the goal and the subsequent rewards, they will make all efforts to maximize it. Accordingly, it instils positive behaviour and lays the foundation for a healthy, competitive sales environment.
2. Improves Trust and Reliability
Sales compensation is governed by various terminologies such as sales quota, accelerators, decelerators, clawbacks, etc. In order to simplify the process, companies can have a sales compensations plan in place, which will add structure and timeframe in the mix. Further, having a defined sales compensation policy will introduce transparency in sales commissions.
3. Adds Value
Companies can pay compensations to incentivize high-performing sales reps and to motivate the rest to follow suit. Conversely, the data captured while measuring compensations offer insights into poor sales performance. Accordingly, businesses can define remedial measures to address these issues through training or lay-offs.
Most importantly, it acts as social proof that you value your salespeople. Naturally, it can deliver spectacular results in attracting top talent to your organization.
4. Reduces Churn Rates
When speaking of attracting talent, businesses should also make efforts to retain existing salesforce. Considering that 43% of employees would switch jobs for an opportunity that offers a 10% raise, no organization is immune to churn. Fortunately, you can safeguard your top salespersons by luring them in with an attractive sales compensation program.
Challenges of Calculating Sales Commissions
With so many standard sales compensation plans available, one may wonder, “What could go wrong while calculating sales commissions?”
Apparently, a lot!
Here are a few common pain points in sales commissions calculations that Managers usually face:
Setting an effective sales quota level and justifying the total cost with the sales compensation ROI.
Deciding a suitable sales compensation model and keeping it competitive
Managing plan complexities while maintaining transparency in calculating sales commissions.
Identifying the KPIs and output metrics that govern the sales compensation plan, measuring and reporting them, and making tedious calculations accordingly.
Aligning the sales commission plan with the company’s growth stage.
Adhering to the company policies, terms and conditions, and rules stipulated by the company.
Documenting every stage of sales commissions calculations.
Evaluating, revising, and communicating the sales compensation plan to keep it up to date.
As one can see from above, sales commissions calculations are no child’s play. You have to stick to a timeline, maintain accuracy, and be fair to your salespeople.
Businesses can streamline the entire process through a Sales Compensation Management (SCM) technology, such as elevate.so.
Negative Impact of Sales Compensation Delays
Sales compensation delays can hurt your business. Here’s how:
Businesses will register lower revenue due to a dip in productivity.
Lower job satisfaction and lack of competitiveness, which causes stagnation.
Diversion of focus from a salesperson’s core offering — selling.
Low morale, which worsens the salesperson’s attitude to work.
Poor employee retention paired with high attrition due to a decrease in job satisfaction.
The unwillingness of new talent to join the company’s salesforce.
A tarnished image in the industry due to bad reviews and poor ratings.
Conclusion: Why Should You Push for the Timely Rollout of Sales Compensations?
By now, you may have realized the impact of compensation delays. Hence, the timely rollout of sales compensation becomes all the more important.
To sum it up, businesses must rollout sales compensations, and they must do it fast! Given its complexities, it would only be wise to automate the sales commissions calculations. SCM technologies take the grunt work off your shoulder, allowing you to focus on your business processes. At the same time, it maintains accuracy and transparency in calculating sales commissions.
So go ahead and fast track your path to success!
With Elevate, you can plan, design & manage both commission plans as well as quota-based plans with the utmost ease.
Elevate aspires to bring transparency in sales compensation. Sales reps can view all details regarding their commissions’ payout, quota attainment & revenue goals. Leaders can track the performance of every team member, manage product-based & territory-based revenue targets.