Building Blocks of an Effective Sales Compensation Plan

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Sales Compensation Plan Building Blocks

Building out sales compensation plans for 2014? Unsure of where to start? Miss our most recent webinar with Michael Hanna? Don’t worry, we’ve got your back.

This two part series will walk you though how to design and deploy the right sales compensation plan for your organization. In Part 1 we’ll focus on breaking down the common modeling elements that go into compensation, and in Part 2 we’ll highlight the most commonly overlooked factors of sales compensation planning.

When it comes down to it, compensation plans are a powerful tool for motivating sales organizations. When executed correctly, the plan drives reps toward success and your business toward achieving revenue rated goals.

Part 1: Common Building Blocks of Effective Sales Compensation Plans

1) Base elements

Standard commission rate: This is the most basic and common commission equation. A linear approach which is broken down by “x” dollars per dollar sold.

Sliding scale: This model is designed to help  accelerate sales upfront. This model which gives reps a boost in commission early in the cycle is best for high volume and transactional sales.

Step Function: The step model sets forth thresholds that reps have to pass for compensation.

2) Limiting elements

Floor: Reps will not earn any commission unless they hit a certain percent of their quota. This is can work both for you and against you depending on your sales organization.

Ceiling: A cap on potential earnings for reps. This is not wise for companies, specifically at the expansion stage as they look to grow their customer base as well as their sales organization.

3) Overperformance

Bonus: The bonus gives reps who hit their quota a lift and higher payout on additional deals.

Accelerator: When reps pass a defined threshold the commission rate will increase. 

Retroactive accelerator: A combination of a bonus and an accelerator. This gives reps commission on past deals after they hit their quota, and then a higher commission value on all deals that exceed their quota.

Want More Tips on Sales Compensation?

Stay tuned for Part 2, when we’ll look at the most commonly neglected elements of a solid sales compensation plan, and be sure to check out our webinar with Michael Hanna, “Show Me the Money: Sales Compensation Plans that Won’t Fail!”