If sales teams are the cars that drive companies, then commission plans are the gas that fuel those cars.
One of the best parts about sales commission plans is that there’s no one perfect way to create them, no one-size-fits-all approach. Figuring out your ideal sales commission structure is a continuous process of trial and error, of small tweaks and sharp turns, until you finally strike that magical balance between your company’s revenue goals and your sales team’s potential.
Although there aren’t any fixed benchmarks to gauge the effectiveness of a commission plan, there are two questions you can ask yourself right now to analyze whether your current plan is working.
Q1. Are my top performers happy and motivated enough to stick around for the long haul?
Q2. Are my mid / bottom performers feeling incentivized enough to want to improve?
If your answer to either of those questions was ‘No’, then there’s a good chance your current comp plan isn’t working as well as you’d like, and that maybe it’s time you made some changes under the hood.
Note: A sales commission plan is part of your sales compensation plan. While the latter includes all facets of a salesperson’s salary (such as base pay, commissions, benefits and bonuses), the former is only concerned with one variable component: commission.
How to prepare an awesome Sales Commission Plan
Like most good things in life, setting up an effective commission plan takes planning and patience. To help you along in the right direction, we’ve broken the process down into nine simple steps.
Step 1: Be crystal clear about the endgame
The most powerful sales commission structures are built with extremely clear objectives in mind. These objectives, in turn, are a direct result of the company’s business goals.
Examples of business goals include:
We want to enter this new market by next year.
Sales of product X need to go up 20% by next quarter.
Our market share in this territory needs to increase by 10% in six months.
If you want your commission plan to be a hit, you need to know exactly what your company goals are and incentivize your sales force accordingly. By aligning your sales goals with company objectives, you can build a commission plan that will drive success at both organizational and individual levels.
Step 2: Assemble your planning team
Once you’ve jotted down the overarching goals of your commission plan, it’s time to decide who are the people that are going to bring the plan to life.
Too many cooks spoil the broth. The same goes for your planning team. Ideally, your planning team should have no more than six to seven members, and should include one senior representative from each key vertical like sales, HR, marketing, and finance.
You also want someone from the comp admin team to make sure the plan is practical and implementable. Lastly, you need someone from legal to vet the plan for any loopholes and give it that added layer of solidity.
Step 3: Collect the right data
Data is gold in today’s times. And when it comes to building a commission plan, you need to hoard as much gold as you can before diving into the nitty-gritties.
What sort of data do you need?
Well, for starters, you could find out what kind of commission structures your competitors have, and whether those structures are working for them or not. Next, you could peek into your own company’s past to see which commission plans were most effective in motivating your sales team and generating solid numbers, and then take a leaf or two out of those plans when structuring your new incentives.
No matter what, though, you must never ignore current industry pay levels. Benchmarking your commission plan against present-day incentive standards will ensure you don’t come across as too frugal or too generous.
Step 4: Calibrate sales quotas
Easily one of the trickiest yet most crucial steps.
Setting accurate sales quotas is a challenge many companies face. Some of the most common hurdles include lack of relevant data, no fixed or vetted processes, misinformation, and the age-old too-high / too-low problem.
So what’s the workaround?
To begin with, you need to look at a mix of past and present data when setting quotas for your team. Too many companies work with only historical — and sometimes outdated — data. Of course, you must also vet the data for accuracy.
For an in-depth view at sales quotas and tips on how to set them, you can head over to one of our other blog posts that covers the topic in detail.
Pro-tip: About 70-80% of your sales team should be hitting their quotas. If your current number is significantly higher or lower, your quotas probably need some revision.
Step 5: Take a breather
This step is more of a checkpoint where you should stop and take stock of your plan. Have a look at what you’ve built so far. Give it a little look-see.
The idea here is to ensure that you haven’t overcomplicated things, or missed anything out. As long as you’ve stuck to the basics, things should be looking fairly good at this point.
Questions you can ask yourself at this stage include:
Is the commission structure we’ve built easy to implement?
Are there any discrepancies or egregious errors?
Will our sales reps be able to easily understand the incentive model?
At the end of the day, a commission plan is only effective if your sales reps know exactly what they need to do in order to earn ‘x’ amount in commission.
Step 6: Bring in the tech
Once you’re satisfied with your commission structure, it’s time to set up a sales dashboard that your team can use to track performances, align efforts, identify areas for improvement, communicate with each other, and essentially ensure that everyone is on the same page.
A detailed, well-planned sales dashboard can provide a simple yet visually powerful way to understand the intricacies of the plan and drive results. This is where a sales commission software like ElevateHQ can make all the difference.
With unified dashboards that let you configure everything from incentive triggers and credit rules, as well as payout schedules and overrides, ElevateHQ is built to automate any sales commission structure under the sun.
Another advantage with ElevateHQ is that all your commission calculations are fully automated. No more manually downloading CRM reports and then painstakingly matching spreadsheets to the actual deals list. Oh, and did we mention we also offer a bunch of free sales commission templates?
Step 7: Decide a payment schedule
There’s really only one piece of advice we can offer when it comes to payment schedules: KISS (Keep It Simple, Silly).
Your commission payment schedule should be clear and simple to understand. There should be complete transparency regarding how and when your reps will be paid. If your reps feel slighted in any way or suspect any funny business when it comes to their payouts, they might lose their motivation entirely. And you, your business.
Without harping on about the point too much, we’d just like to say that here, again, a sales commission software can be your knight in digital armor. Automating payments, payout reconciliations, tracking commissions, maintaining audit trails — the benefits are endless.
Step 8: Make it official
Okay, so you’re all set. Your commission plan is ready. Time to rock ’n’ roll (in dough).
Before you share the plan with the entire organization, it’s a good idea to run it by a couple of senior sales managers as well as some top-performing reps to get a ground’s-eye perspective on things. After all, soldiers sometimes know stuff generals don’t.
After that, it’s time to bring out the megaphone and make the grand announcement. Annual sales meetings are a perfect place for this, since everyone from top brass and senior management to sales managers and their teams will be present.
Senior sales leaders can present the plan and then address any questions the crew may have — be it regarding roles, commission structures, payouts, or anything else.
Later, the managers can have an informal sit-down with their teams to resolve any lingering doubts and to chalk out bespoke strategies for each member to help them hit their quotas.
Step 9: Conduct periodic reviews
As we mentioned at the start of this post, commission plans require continuous attention and analysis.
Just like a car requires regular maintenance, you need to check in every now and then to make sure all the parts of your plan are moving in-sync and operating smoothly.
Remember: Commission planning is an ongoing process, requiring changes and upgrades throughout the year.
As your business grows and evolves, your sales targets and strategies are bound to change. And if your commission plan doesn’t reflect those changes, that’s going to create problems in the long run. And the short.
Conclusion
When it comes to motivating your sales team, there’s no bigger motivation magnet than a sales commission plan — but only one that’s done right.
Setting up a commission plan that delivers consistent results is not an easy task. And it shouldn’t be. If it was, all companies would be successful.
With the steps mentioned in this post, you should be able to lay the groundwork for a fairly solid commission plan. The tweaks you make as you go along will decide just how far that plan will get you.
