theboardiQ Sales Compensation Playbook
Your guide to implementing best fit sales compensation structures to maximize revenue performance and drive sales.
Sales compensation is the way salespeople are paid, typically involving a mix of guaranteed salary and performance-based incentives. It's a crucial tool for attracting, motivating, and retaining top talent, while also aligning their efforts with your company's goals
Overarching philosophy:
theboardiQ recommends the following overarching philosophy in designing a robust sales compensation plan.
Key objectives:
Adapt and Align Strategy at the Speed of Business:
The rate of change in business is faster than it's ever been, and it's not slowing down. Choosing the right sales incentive plan and pay mix and tying it to your WIGs will help you use compensation to adapt your go-to-market motions in days, not months.
Remove Performance Hurdles and Crush Your Quota
Eliminate barriers to productivity that create frustration for you, your sellers, and your ops team. When sellers stay laser-focused on the activities that matter, they're more motivated, productive, and focused to help you hit your sales targets.
Maximize Insights and Data-Driven Intelligence
Connected data and analytics give you smarter incentive compensation design, planning, and visibility. It is imperative to determine the right plan and connect and enrich your data for maximum insight into seller performance.
Step by step guide:
Step 1: Choose the right sales model and pay-mix
In compensation, pay mix is the combination of commission, salary, and bonus that makes up a sales reps’ total income. Pay mix differs from company to company and industry to industry but in general, pay mix should be balanced in a way that rewards reps for the right behaviors and activities, but protects against overpaying under-performers. Compensation mix is largely dependent on a few factors. These include:
the level of influence the role has on each purchase,
the complexity of each sales cycle,
the amount of work that goes into each deal,
the industry, and more.
Step 2: Define your Wildly Important Goals
What do you want to achieve with your sales compensation plan? Do you want to increase sales volume, grow market share, expand into new territories, or improve customer retention? Clearly defining your Wildly Important Goals will guide the structure and metrics of your plan.
Step 3: Understand your target audience.
Who are your salespeople? What motivates them? What are their strengths and weaknesses? Consider conducting surveys or focus groups to gather feedback and tailor your plan accordingly.
Step 4: Research the market.
Benchmark your compensation plan against similar companies in your industry. This will help you ensure your plan is competitive and attracts top talent.
Step 5: Choose the right mix of components.
There are several common components of sales compensation plans, including:
Base salary: A fixed amount of pay that provides financial stability.
Commission: Variable pay tied to performance metrics, such as sales volume or quota attainment.
Bonuses: Additional rewards for exceeding individual or team goals.
Benefits: Health insurance, retirement plans, and other perks that add value beyond immediate pay.
The right mix of components will depend on your specific goals and target audience. For example, if you want to incentivize high sales volume, you may want to emphasize commission over base salary.
Step 6: Set clear and attainable performance metrics.
Your salespeople need to know what they need to achieve to earn their target compensation. Set clear, measurable, attainable, relevant, and time-bound (SMART) goals (WIGs) for each performance metric.
Step 7: Communicate the plan effectively.
Once you have designed your plan, communicate it clearly to your sales team. Make sure they understand the goals, metrics, and payout structure.
Step 8: Monitor and evaluate your plan.
Regularly monitor the performance of your sales compensation plan and make adjustments as needed. Is it achieving your desired results? Are your salespeople motivated and engaged?
Types of plans:
1.Salary + Bonus Plan
In this model, a bonus kicks in on top of salary if a sales rep hits a specific quota (ON TARGET). Enter the rep's base salary, the bonus %, and the bonus CAP, to calculate ON TARGET Bonus payable on 100% achievement of Sales Target.
A sales structure that is made up primarily of base pay, offers more financial security to reps. This type of structure is used in companies that have the resources to pay teams a regular salary. It’s also often utilized in roles that have less control or influence over purchase decisions. This would apply for a BDR role or roles that impact deals in less direct ways.
We caution against using a base-heavy pay mix for roles or teams that put in a lot of work to close deals- think, sourcing leads, prospecting, booking meetings, holding demos, etc. If you’re paying a larger base salary, you’ll find teams aren’t as motivated to do the work needed to win sales.
2.Commission Only Plan
In this model, commission is the sole factor in compensation.0/100:
This mix is typically referred to as a commission-only compensation structure. Essentially, an employee paid on a commission-only basis doesn’t have a base salary to rely on. All of the pay they bring home is dependent on their performance.
A structure like this is most commonly used in startups or small businesses who are just starting out. They don’t have the resources to offer a base salary just yet and they need a sales team that’s motivated to succeed.
The cons, of course, are high levels of sales turnover due to lack of financial security, burnout, and cut throat sales teams who may struggle to work together.
3.Salary + Commission Plan
In this model, salespeople earn commission in addition to a base salary. Enter base salary, projected sales, at what sales amount commission kicks in and caps, and what commission percent is. If commission does not cap, enter a large number, such as "1,000,000,000,"
4.Tiered Commission Plan
In this model, commission is the sole factor in compensation, but commission rates change based on sales amounts. In each tier, enter the commission rate and at which unit of sales is the transition between each tier. If after a certain tier caps no longer apply, type a large number that could not be achieved by your sales team (i.e. $1,000,000,000). Otherwise, this will affect the formulas in this worksheet and produce an inaccurate prediction.
5.Set Rate Commission Plan
In this model, reps earn a specific dollar amount for each sale. Enter the rep's base salary (if applicable), how much commission is, and projected units sold.
6.Relative Commission Plan
In this model, reps earn a separate commission rate based on whether they are performing under or over quota.. Enter the rep's quota, projected sales, base salary (if applicable), and how much commission is at each tier.
Generational and demographic preferences
Younger workers, such as those in the Gen Z (18-22) and Millennial (23-39) age categories show a higher preference for developmental opportunities, such as ‘being given more responsibility at work.’
Younger workers also place higher value on ‘having dinner or lunch with company management’ as this also is seen as aiding their upward mobility in the company.
Those in the Gen X and Boomer categories place more focus on recognition opportunities that allow them to spend more time and have experiences with their families, such as paid days off, company paid lunches and dinners, and opportunities to experience special events.
There are some gender differences in reward preferences.
Females have a greater preference for gift cards, award points, and food gifts, as well as flexible scheduling and paid lunches or dinner with their families.
Males gravitate more toward developmental rewards such as being given more responsibility, having lunch or dinner with their supervisors and being able to mentor other employees.
Sales hierarchies
For entry-level salespeople, refer to the following job profiles:
Senior Sales Analyst: Senior sales analysts are responsible for analyzing sales data and reporting it to the appropriate personnel.
Sales Assistant: Sales assistants are typically entry-level sales roles with the responsibility for doing clerical work in sales.
Quality Analyst: Quality analysts are responsible for inspecting sales data to ensure it is accurate.
Customer Care Representative: These sales reps focus on customer satisfaction and ensuring that customers are able to get answers to questions they may have.
Sales Associate: Sales associates are sales reps that handle smaller accounts and focus on generating sales for the company.
Sales Engineer: Sales engineers work with customers to ensure they are satisfied with their sales transactions and provide any support they need.
Account Manager: Account managers focus on developing new sales opportunities and maintaining existing accounts
Sales Representative: Sales representatives are sales reps that focus on generating sales for the company.
Account Executive: Account executives work with customers to ensure they are satisfied with their sales transactions and provide any support they need.
Sales Representative: Sales representatives are sales reps that focus on generating sales for the company.
Sales Trainee: Sales Trainees are also sales reps in training who typically do clerical work.
For mid-level salespeople, refer to the following job profiles:
Director of Sales: Directors of sales have high-level responsibilities in sales management such as supervising team leaders, training new sales representatives, setting sales goals & tracking results, etc.
Sales Manager: Sales managers are the sales representatives that have been around for a while and developed sales skills.
Sales Branch Manager: Sales branch managers oversee sales in a specific geographic area.
Assistant Sales Branch Manager: Assistant sales branch managers are sales reps that have gained experience over time and are now responsible for overseeing sales in a specific geographic area.
Sales Director: Sales directors are sales managers that oversee sales in specific areas.
Sales Executive: Sales executives are sales reps who have proven themselves to be valuable assets to sales organizations.
Sales Specialist: Sales specialists focus on sales transactions that are trending or complex.
Account Manager: Account managers focus on developing new sales opportunities and maintaining existing accounts.
Market Research Analyst: Market research analysts perform sales market analysis to determine sales opportunities and suggest new products.
Senior Sales Analyst: Senior sales analysts are responsible for analyzing sales data and reporting it to the appropriate personnel.
Lead Development Officer: Lead development officers are sales managers who focus on developing sales opportunities.
Sales Development Representative: Sales development representatives work within sales teams or sales departments to fill sales openings through activities such as cold calling, emailing, etc.
Sales Professional: Sales professionals are sales reps that have sales in a specific industry or vertical.
Administrative Assistant: Administrative assistants serve as sales support staff by performing clerical work in sales such as answering sales calls, filing documents, scheduling appointments, etc.
Sales Coordinator: Sales coordinators typically provide administrative support such as sales forecasting, sales reporting & sales information.
Sales Consultant: Sales consultants work with sales management staff and sales representatives in a sales organization, providing support and sales guidance.
Inside Sales Consultant: Inside sales consultants are sales reps that focus on sales transactions inside a company as opposed to outside.
Junior Sales Consultant: Junior sales consultants typically provide sales support such as sales forecasting, sales reporting & sales information.
Team Leader: Team Leaders are sales managers in training. They have a lot of responsibility but do not yet have the authority to make decisions for their team members.
For senior-level salespeople, refer to the following job profiles:
Chief Executive Officer: CEOs are sales managers who have proven themselves to be valuable assets in sales organizations and have high-level responsibilities such as sales management, sales operations, and sales strategy.
Chief Sales Executive: Chief sales executives are high-level sales managers who handle all aspects of a sales organization.
CEO of Sales: CEOs of sales oversee sales in a specific industry or vertical, including sales management and sales operations.
Chief Executive Officer: Chief executive officers oversee sales in an entire company or industry.
Controller: Controllers manage financial transactions within a business organization such as overseeing accounts receivable, accounts payable, etc.
National Sales Manager: National sales managers oversee sales in a specific geographic region.
Regional Sales Manager: Regional sales managers lead regional sales teams and provide support to national sales organizations.
Executive Vice President of Sales: Executive vice presidents of sales are responsible for overseeing all areas of the company's sales department such as training, marketing & branding, and daily operations.
General Manager of the Sales Department: General sales managers oversee sales teams in retail settings.
Vice President of Sales: Vice presidents of sales are responsible for overseeing all areas of the company's sales department such as training, marketing & branding, and daily operations.
National Sales Coordinator & Distributor: National sales coordinators and distributors typically provide sales support such as sales forecasting, sales reporting & sales information.
Senior Sales Accountant: Senior sales accountants work with sales to ensure that all sales transactions are accurate and organized.
Zonal Sales Manager: Zonal sales managers are responsible for overseeing sales teams in a specific region and reporting sales numbers to the company's top management.
Sales Director: Sales directors oversee sales operations and create sales strategies at the highest level within an organization or industry.
Senior Sales Consultant: Senior sales consultants typically provide sales support such as sales forecasting, sales reporting & sales information.
Senior Sales Engineer: Senior sales engineers work with sales to ensure that all sales transactions are accurate and organized.
Head of Customer Acquisition: The head of customer acquisition is responsible for developing marketing strategies designed to attract new customers to a company's products or services.
Area Sales Manager: Area sales managers oversee sales teams in a specific region and report sales numbers to the company's top management.
President of Sales & Marketing: Presidents of sales and marketing oversee all areas of the sales department such as training, marketing & branding, and daily operations.
Senior Sales Manager: Senior sales managers oversee sales teams in a specific region and report sales numbers to the company's top management.
Sales Administrator: Sales administrators provide sales support such as sales forecasting, sales reporting & sales information.
Global Sales Director: Global sales directors oversee sales operations and create sales strategies at the highest level in an organization or industry.
Remember the overarching philosophy of designing a great sales compensation program:
Trust - Our program is fair, achievable, understood. It will drive the results we are after.
Transparent - Our people know about it. They will be excited to talk about or engage with it.
Targeted - Our program is targeted and tied directly to our Wildly Important Goals
At theboardiQ, we are your trusted advisor..every step of the way. Contact smitashree@theboardiQ.com for your executive hiring and human resources strategic consulting needs.
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