Do tiered rates in sales commissions translate directly into higher revenue? The answer to this question depends on your unique organization. Implementing this type of commission structure can be challenging but it could also be well worth the work.
Sales organizations with a primary goal of boosting revenue often consider tiered rates in their commission plans. These companies do this because sales commissions with tiered rates add incentives for sales to hit those higher goals. In order to know whether the strategy will work, executives really need to know their sales team and how they tick.
Tiered commission rates offer salespeople the opportunity to unlock higher rates as a reward for hitting higher quotas.
Organizations made up of aggressive and high-performing individuals will likely benefit most from tiered rates. That added incentive of a higher rate often won’t work for sales teams that rely heavily on support staff for leads or other assistance. In the case of independent salespeople going after their own leads, tiered rates will be more successful.
Why Implement Tiered Rates?
As we noted above, one of the most referenced reasons for implementing tiered rates is to drive revenue. Structuring commissions so that sales reps unlock increased rates as they reach higher levels of sales theoretically increases both sales and revenue. It also gives top performers a reason to keep selling more.
A sales team that gives its people freedom to get creative in their sales tactics may also see the benefit here. A creative sales rep can certainly manage to sell more with the right incentives in place.
How To Implement Tiered Rates?
Once an organization determines to incorporate tiered rates into its commission plans, it must lay out that plan. Here are a few steps to consider when devising a tiered rates commission plan.
- Map Out Tiers: How tiers are defined should be based on the organization’s overall goals. Some plans require salespeople to reach a certain number of closed sales while others set revenue goals.
- Figure Out Rates: With designated tiers in place, it’s time to assign rates to each level. This exercise requires an organization to know what will benefit both the salesperson and the business’s bottom line. The increase in rate should be appealing enough to motivate sales. It also needs to work within the company’s commission budget criteria.
- Communicate with Sales: In order for tiered sales to do their job in motivating sales, you need to tell sales about them. We’ve discussed this previously but delivering a thorough explanation of commission changes helps keep sales teams working toward their goals.
Best Practices for Tiered Rates
Implementing tiered rates doesn’t stop once you’ve sketched out the plan. Here are a few tips to remember when managing a commission plan with tiered rates.
- Avoid Errors: Introducing added complexity to anything increases the opportunity for mistakes. Make certain that all commission calculations remain as accurate as possible with each commission cycle. Even just a couple of miscalculations can disrupt the motivation of an entire sales team. Of course, Core Commissions clients know that our application eliminates errors that may appear.
- Stay On Schedule: Even as adjustments need to be made, it’s important to keep commission cycles on time. Again, late paychecks may frustrate your employees. So plan ahead and use reliable tools, like Core Commissions, to stay on top of commissions.
- Communicate, Communicate, Communicate: We mentioned this above but communicating with your sales team is key. That means not only explaining the tiered rates plan but giving them access to their progress. If they can see where they stand in real-time through something like Core Commissions’ sales web portal, it may motivate them to keep going to the next tier.