ZipRecruiter puts the average salary of a pharmaceutical sales rep at $72,525. However, this is just a starting off point for most pharmaceutical sales reps. This average salary is just considered their base salary and does not account for the total earning potential that a sales rep has.
In addition to their base salary, a pharmaceutical sales rep generates income through incentive compensation such as commissions and bonuses.
What do Pharmaceutical Sales Reps Sell?
Pharmaceutical sales encompass a wide range of medications, vaccines, and other forms of medical treatments. Sales reps work almost exclusively with healthcare providers, pharmacies, and hospitals, with physicians making up at least two thirds of their clientele.
As with any industry, sales reps are required to undergo education and training in order to speak effectively about the pharmaceutical they are trying to sell. However, certain types of specialty pharmaceutical products such as opioids or vaccines often require additional training to address the niche market.
Pharmaceutical Sales Territories
As discussed in our blog, Tips for Mapping a Successful Sales Territory, a sales territory is a segment of prospective clients that are divided based on either geographic location, product, or customer demographics.
For an industry like pharmaceutical sales, they work to ensure a broad market reach, so employing sales territories is a large part of their sales strategy. Many of the overall strategies we discussed in our territory guide come into play here, however, for pharmaceutical sales, territories are most commonly determined based on geographic location or customer/account demographics.
Sales territories are defined by evaluating components such as market size, market potential, opportunities, as well as being cognizant of travel time for sales reps.
Geographic Location: Determining sales territories based on geographic location is usually the easiest way to divide accounts. When using this method of territory alignment, organizations are largely taking into account travel time and expenses for their sales reps. Every company will have different terms for what constitutes a specific geographic territory. It will depend on how big the organization is, how many reps they have, and the density of healthcare providers or prospects in a given area. This means reps could be grouped by region, state, county, city, or even postal code.
Account Demographics: Most pharmaceutical companies will have more than one type of product to sell, so it may make more sense to divide territories based on the type of product being sold as well as targeted healthcare specialties for that product. For example, if one territory is focused on selling medication related to heart health, their territory will not be confined based on geography, but will focus on cardiologists.
Specialization in a certain area of pharmaceuticals allows reps to become more knowledgeable and therefore more effective in their sales strategies. So, despite the added cost of travel when dividing territories by region, the revenue incurred from rep specialization may offset the cost.
Combination of Account & Geographic: Some organizations may choose to use a combination of both geographic location and account demographics when drawing their boundary lines. Using both in a sales strategy allows the organization to benefit from the cost effectiveness of reduced travel and rep specialization leading to increased sales. An example of this could be sales reps specializing in heart medications will target all cardiologists on the west coast.
However, the common barrier to a combination method is that it requires a lot of research and attention to changing market dynamics, making the territories more complicated and time-consuming not just to draw up, but to manage.
Pharmaceutical Sales Compensation
Commissions and other sales compensation makes up approximately one half of a sales rep’s annual income. This is obviously dependent on the company and the sales rep themselves, but sales compensation is a big part of the overall annual income of a pharmaceutical rep.
Unlike their base salary, which is usually paid out in accordance with the company’s usual payroll schedule, the commission pay schedule may be less frequent – often processed once a quarter. Below are some of the common sales compensation structures for a pharmaceutical sales rep.
Commissions
Percentage of Revenue: The most common structure for pharmaceutical sales commissions is a standard percentage method. This means sales reps earn a percentage of the overall revenue generated in each sale. The percentage rate used will vary based on the specific pharmaceutical being sold and each company’s individual policy. High-demand pharmaceuticals are more likely to result in a higher commission rate, whereas lower demand pharmaceuticals carry more modest commission rates.
Unit-Based: Another common commission structure in pharmaceutical sales is a unit-based commission structure. With this method, sales reps earn a set dollar amount for each unit sold. The unit and dollar amount are defined by the organization itself. Unit-based commissions are typically used for established pharmaceuticals with consistent sales.
Commission Tiers: Similar to other industries that reward high-sales earners, pharmaceutical sales reps can achieve a higher commission percentage by meeting outlined sales quotas. When sales quotas are tiered, it ranks sales reps by performance, allowing higher performing sales reps to take home more commissions.
Other Incentive Compensation
Bonuses: Bonus structures are used in pharmaceutical compensation plans as a way to provide an added level of motivation for sales reps to meet certain goals. With only commissions offered, sales reps may become complacent with stagnant sales trends, but bonuses give that opportunity to be rewarded for going above and beyond. Bonuses are usually incorporated when sales reps exceed sales quotas, successfully launch a new product, or attain any other short-term or long-term goals.
As with commissions, it’s not uncommon for bonuses to also be tiered, so sales reps with higher close rates can earn larger bonuses based on their performance.
Additional Compensation Variables
Quotas: Quota attainment is an important aspect of a commission plan for pharmaceutical sales. Quotas are sales goals that are created by leadership to both provide clear guidelines on what company expectations are for how many deals they should close, as well as act as a motivator to their team to ensure they are meeting outlined quotas.
Accelerators: In pharmaceuticals, like most industries, high volume sales are the name of the game. Most organizations will use accelerators as a way to reward high-performing sales reps for surpassing outlined quotas. Accelerators are usually tied to commission tiers, which give sales reps the opportunity to earn a higher commission rate for each sales tier that they meet.
Decelerators: In the complete opposite of an accelerator, decelerators are used in pharmaceutical commission structures as a way of correcting underperformance by sales reps. If a reps’ performance falls below what is expected of them, they will likely move to a reduced commission rate until they are able to meet baseline sales expectations.
Clawbacks: Pharmaceutical companies may employ a clawback provision in their commission structure, meaning the company can recoup commission payments already paid out to reps in situations where there is a sales reversal or customer cancellation. Clawbacks may be the whole amount of the commission paid, or a percentage of the commission paid. The amount subjected to clawback is based on a company’s documented policy and the timeframe from when the customer makes the initial purchase.
Track & Manage Pharmaceutical Sales Commissions
With an industry that records such a high-volume of sales, having a reliable and accurate commission platform to track and manage sales data is crucial. From simplifying account management of your sales reps, to tracking product sales, and seeing revenue trends across sales territories, Core can automate any aspect of commission management for pharmaceutical companies.
Contact us for more information or schedule a free demo to learn how Core can automate all aspects of commission management for pharmaceutical companies.