4 Tips for Creating Effective Sales Compensation Plans


When hiring new sales reps, market your sales position with a compensation plan that attracts realistic candidates who will work for you at the price you are willing to pay.

Here are four tips in creating sales compensation plans.

1) Don’t overpay a base salary, but don’t let them die on the vine. You want sales reps who are hungry to make sales, yet you don’t want them starving at home during the initial ramp-up. If they are worried about paying their bills, they can’t focus on long term results. Provide a safety net with a base salary or draw that reflects the length of your sales cycle. The longer the sales cycle, the larger the safety net.

2) Tie incentives to the activities or results you desire. Almost 7 in 10 sales and finance managers think their compensation plans fail to drive desired behaviors according to a study by Synygy. In addition to commissions for closed sales, consider activity incentives. If you know that 50 cold calls per day generates five conversations that results in one sale, then provide your reps with a cash incentive to make the 50 daily cold calls.

3) There is no perfect plan. Be flexible based on the experience and track record of the candidate. If necessary, customize a sales plan for top producers. Your top sales rep may need higher upside potential to feed their hunger for success. Like a race horse, let them run and run fast. Don’t let processes and structured comp plans get in the way. If your a new rep is experienced with a great track record, be willing to pay them more than your average players.

4) Be realistic about income potential. Honest numbers work. The “sky is the limit” or “earn a $6 figure income” is over played. Receive better quality candidates by painting a realistic picture of first and second year income achieved by your above average players. Look at industry comparisons too to set realistic expectations.

Keep in mind that current market conditions and profit margins need to be factored into every competitive sales compensation plan.

Learn more about how to match sales compensation plans to your next sales hire.

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