The way compensation is structured plays a crucial role in motivating and driving the performance of your sales team. Often, a compensation structure is designed to only motivate each individual sales rep. However, it’s equally beneficial to motivate your employees to work collaboratively so the entire team has successful outcomes.
Getting all of your sales reps on the same side to reach a united goal can make a positive impact on the success of your team long-term. An effective way to encourage this kind of team collaboration is to implement a pooled commission structure.
What is a Pooled Commission Structure?
A pooled commission structure is when a company designates a specific amount of money or percentage of revenue toward a pool, and if sales reps are able to achieve a specific goal they receive a portion of that money. The commission pool is distributed to participating sales reps based on predefined criteria, such as their contribution to the overall performance of the team.
For example, say your company has a goal to reach $20,000 in revenue by the end of the month and if this goal is met, a pool of 1% of that revenue will be allocated to all eligible sales reps.
How are Commission Pools Distributed?
When determining the amount that each sales rep will earn from the pool, a company will typically allocate shares either equally or proportionally. If the pool is to be distributed equally, all sales reps who qualify will receive an equal portion of the pool. With proportional shares, the commission pool is distributed based on how much each individual sales rep contributed to the overall performance of the sales team.
Example: A company creates a commission pool of $10,000. In order to qualify for the pooled commission, sales reps need to meet at least 50% of their sales quota.
Equal Shares: If you have 10 sales reps that qualify, each sales rep would take home $1,000 from the pool.
Proportional Shares: If you have 10 sales reps that qualify, but four of those sales reps achieve more than 75% of their sales quota, those four will take home a larger percentage of the pool. The exact amount will depend on how the company decides to allocate the proportions.
Benefits of Pooled Commission Structures
Pools provide many benefits and can be advantageous for companies who are trying to reach short-term or targeted goals while promoting teamwork and comradery among sales reps.
Here’s why your team should consider adopting this type of compensation structure:
Foster Collaboration: One of the primary benefits of a pooled commission structure is to provide an opportunity for team-building and collaboration among sales reps. With a commission pool, all team members have a vested interest in supporting each other and working together in order to meet the goals established for the team. Having a sales team that works well together can be an asset to any sales or development department and pooling commission is a great way to get your reps to interact and share ideas with each other.
Eliminate Unhealthy Competition: Because team members are required to work together in a pooled commission structure, it can help eliminate unhealthy or toxic competitiveness that can sometimes develop among team members. When competition among team members becomes cutthroat, it can have adverse effects on the dynamics of the team, such as causing reps to be uncooperative with their team members and become more focused on their own personal gain. A pooled commission structure can help remove the element of rivalry and encourage a team-oriented approach, fostering a sense of unity and shared goals.
Creates an Opportunity for Everyone to Win: In all sales teams, there are reps that will consistently outperform their teammates because of factors such as experience, territory, or product specialization. Pooled commission structures help to bridge the gap by redistributing funds to ensure that all team members receive a fair share. By creating a fairer and more level playing field, you will be reducing potential resentment and increasing overall job satisfaction for all members of the team.
Encourage Mentorship: With a pooled commission structure, top performers have an incentive to share their expertise and insights with other members of the team, including newer and less experienced sales reps. This exposure to shared knowledge and tactics benefits the entire team. It encourages growth among team members who learn from each other, allowing them to improve their skills and collectively elevate the team’s sales capabilities.
Creates a Unified Goal: Pooled commission structures can be designed to align individual and team incentives with broader organizational objectives. By setting performance metrics that prioritize customer satisfaction, long-term relationships, or specific strategic goals, companies can ensure that their sales teams work together towards shared objectives rather than solely focusing on short-term gains.
Best Practices for Pooled Commissions
While there are many benefits to implementing a pooled commission structure, in order to ensure the effectiveness of the pool, consider these things:
Make it fair: When designing your pooled commission structure, be upfront and transparent about the performance criteria involved in determining how much of the commissions will be allocated. As much as possible, try to create equal opportunities for all sales reps. This will help limit any disparities in the amount that a newer team member will earn compared to a more seasoned rep. The whole point of this is to engage all members of your team and encourage them to work together. If the guidelines for the pool are unfair or seem to be tipped more advantageously toward specific sales reps, it may discourage or dishearten other reps.
Communicate Regularly: To maintain motivation and encourage your sales reps to continually work toward their designated goals, it’s essential to communicate with all members involved in the pool as much as possible. Doing so will help keep your team focused on what outcome you are trying to achieve and can keep team members excited about the incentives that you are offering as part of the commission pool. An effective tool for communicating can be a visual representation such as a team dashboard that shows how close the team is to achieving their goals.
Track & Measure Team Success: The outline for your pooled commission structure should include how you will be tracking the success of all members involved in the pool. You will want to track each sales rep’s individual contribution as well as the overall success of the team.
The metrics in which you are evaluating the team should be clear and communicated to all reps involved, and as an administrator, you should be monitoring the progression of these metrics frequently. As mentioned above, it’s a good idea to give your reps visibility into the success of the pool with a dashboard or report, which you should try to keep as up-to-date as possible as your team members will likely want to check their status regularly.
Lead Your Team with Automated Commission Software
By leading a successful commission pool, you can foster collaboration and incentivize your team to work together to reach designated sales goals. This collaborative environment promotes knowledge sharing, collective problem-solving, and mentorship from more seasoned sales reps to more novice reps, resulting in an overall stronger sales team.
Once you have established your commission pool structure, Core Commissions’ software can help you create a dashboard to allow you to track your rep’s contribution and overall performance. Core’s employee portal also gives your reps complete visibility to check their status at any time with live data.