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Business owners can be unsure of which commission structure will give their sales team competitive pay while optimizing their organization’s bottom line. Making your commission structure clear for everybody can motivate your sales team. Providing the team with incentives and a reward system can enable some behaviors that will make your team not only work as a unit, but accomplish quarterly goals that make both company and team happy.
Fourteen members from Forbes Business Development Council reveal some tips on how to make a commission structure work. It can also help grow your business as a team and stay goal-oriented when it comes to growing revenue every quarter.
1. Create A Reward System Centered Around Commissions
I would tie commissions to reward new business acquisition. New business is harder today for sales and clients. Too many choices, too much information and market uncertainty—if a salesperson can penetrate this, they deserve the best. In B2B business, repeat sales owe themselves more to brand performance than salesmanship so it doesn't make sense to reward customer retention over new business. - Wajid Mirza, Arthur Lawrence
2. Motivate Your Team With The Right Incentives
The first step is to identify behaviors you want to incentivize—ones that align with your company's values and goals—and not just bottom-line outcomes. These should serve as the foundation on which your sales team bases its performance indicators. - Vijay Sundaram, Zoho Corporation
3. Be Clear About How Much Money Will Be Made
Your guiding principles should be to align compensation with KPIs, include top performers and be transparent. If driving expansion vs landing new logos is more important and if you already own the market share, reward expansion with a higher comp rate. Pull your top performers into the process. They will be your champions, and communicate the "why" behind the design elements, so they are bought in. - Rebecca Myrick, Anomali
4. Encourage Certain Behaviors That Are Positive
Build your commission structure based on the behaviors you want to encourage. Sales professionals are generally motivated by earning potential. By placing higher incentives on the behaviors you want to push, you'll naturally see an increase in those behaviors. You can consider things like higher commissions on higher margin services or "spiffs" for quicker call response times. - Datis Mohsenipour, Outback Team Building & Training
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5. Give Your Employees Percentages In Everything
Make commission off gross profit and for the term of the deal. Today's businesses are all being structured around recurring revenue. (Think SaaS). Sales reps will only sell what they are paid on. Make their pay a percentage of gross profit and pay them for the whole term of the initial contract sold. If you don't, guess what? You'll get one- or two-year contracts. Pay them for five years, and you'll get five-year contracts. - David Strausser, Vision33
6. Create A Plan To Execute When Trying To Sale A Product
Since compensation drives behavior, when setting up a compensation plan its key to first define what behaviors you’re trying to drive. Of course, your plan will reward for closed sales but there should also be consideration for the activities that lead up to a closed sale. If you incent your teams for pre-sales activities, it will ensure your sellers are fully vested in the entire sales process. - Christopher Brunetti, Lumen Technologoes
7. Give Employees A Choice On How They Want To Receive Payment
Try offering a set of compensation structures based on the needs of the individual. You could have a high commission/low-base plan, a high base and low commission plan, and a middle ground with a flexible work environment. Just be clear up front that they have to choose what is right for them for the year. Personalized plans drive motivation, but you don't want to have to renegotiate later. - David Mattson, Sandler
8. Set Low Rates And Higher Commission For The Salesperson
Pay commission on margin, not revenue. That aligns the salesperson's incentives with the company's. If you don't want to share cost information (which is understandable), set three prices: list, target and floor. Pay a higher commission above the target. A much lower rate below it. - Mark Stiving, Impact Pricing
9. Improve Each Commission Structure And Ask ‘What Needs To Change?’
Learn from previous commission structures and improve. Ask for feedback from high, middle and low performers. You may be surprised what you learn. Uncover what has been motivating to drive results. Also, dig deeper to learn any previous loopholes or incentives that did not drive the business forward or actually hurt the business. Take all the learnings to create a better commission structure. - Matthew Rolnick, Yaymaker
10. Offer Great Base Salary And Good Incentives
It’s good to have a strong base salary in place with some good incentives that are not capped. You need a strong base salary because that justifies why your sales team needs to follow your processes rather than have them become mavericks and do their own thing in terms of sales. If they are only earning out of commissions, they will only focus on what they believe works best for them. - Russ Stephens, Association of Professional Builders
11. Inspire Your Team To Reach The Ultimate Goal
Your structure should encourage the areas of growth that are needed for your company to be successful and if you are public the key areas the street is looking for. Mapping this to metrics that can be achieved will ensure a winning culture with the least amount of attrition. - Donald O'Sullivan, Pegasystems
12. Make More Milestones That Drive Your Team To Do Better
Assign a value to each stage of the sales process. Let’s say your goal is $10 million in revenue. You might value lead qualification at $1,000, demo requests at $3,000 and closed deals at $10,000. That provides your sales team milestones, especially for long closing cycles. Once you assign a value to each stage, you can decide how much each sales rep should earn on a commission basis. - Wayne Elsey, The Funds2Orgs Group
13. Present A Healthy Balance Between The Goal And The Reward
With sales, it’s not just about driving objective outcomes, but the key to set up a commission structure for the sales team is to balance the intended outcomes with the counterintuitive behaviors such a structure may trigger. In other words, the structure must protect itself from "perverse incents" (underpinned by the cobra effect phenomenon). So, objectivity is important, but balance is the key! - Sudeep Sarkar, Revature LLC
14. Have That Honest Conversation With Your Team
For us, being 100% transparent up front goes a long way. Clearly define what the commission amount is, when they get paid and how they get paid. When they know how much they are going to make ahead of time and how soon they are going to get paid from that sale, it adds fuel to their fire and desire to be successful. - Bill Baker, Surface Solutions Countertops Inc.
