What To Ask When Building A Sales Commission Plan

by | Jun 12, 2020

Determining how to pay your salespeople may be one of the most important decisions you make as an organization. A study last year by TINYpulse found that the promise of a 10% salary increase would make 43% of employees leave their current jobs. So it’s important to craft a sales commission plan that meets salary expectations and attracts the most talented sales representatives you can find.

When designing a sales commission plan, management needs to ask a few questions. What will work for their organization, what will motivate their team, what method to use: all of these are basic, structural considerations that must be examined in the process of arranging for sales compensation.

43% of employees said they’d leave their current job for a 10% raise in salary.

Luckily, we’ve picked up a few insights over the years and we can help walk you through the top questions to ask when planning sales commission. We’ve even got the answers to this test.

Best 7 Commission Plan Questions:

1. What’s the best method for determining sales commission?

That entirely depends on what works best for your organization. Commissions can be based on profit, distributed according to how much of their quota is met, or tiered to allow increased rates as sales goals are achieved. Hubspot offers a pretty thorough look at different methods in this article. It’s best to keep in mind that any plan you choose must work with your budget, be easy to explain to new reps and ensure your employees earn a competitive wage.

2. What’s a fair rate to pay salespeople?

Sales rates vary by industry. The best way to establish the best rate for your organization is to compare other similar companies and how they determine commission. When considering the commission rates for your team, it’s best to benchmark them next to the average pay of their peers. And plan it out so that an average salesperson can earn at nearly half of their salary through commission.

3. What’s the average pay for salespeople in this industry?

A little bit of research on this will help a great deal. The U.S. Bureau of Labor Statistics estimates pay for employees in a variety of industries around the country. It’s a good idea to drill down to your state and metro area and take the cost of living into account. Then determine the salary that works best for your employees and create a commission plan that aims for that.

4. Are there better ways to motivate my sales team outside of commission?

Sure. There are several other incentives that can be offered to motivate your sales team. You may consider offering additional PTO or stock options. At the end of the day, your salespeople need to pay their bills, and having the opportunity to make more money if they perform better will be highly motivational.

5. Can I change the sales commission structure later?

Certainly, sales commissions structures have to change from time to time. But we recommend keeping changes to a minimum. Every time you make a change and shift goals, it causes confusion and ultimately frustration among your team. Try to limit changes and — when changes are unavoidable — communicate them well ahead of time and remind people, in emails, on posters, in sales meetings, that those changes are coming.

6. How often should I run sales contests or incentive programs?

Seasonal or quarterly contests have the potential to drive higher sales for a period if that’s your goal. How often you coordinate them is up to you and your organization but making them consistent and understandable is key. Make sure you communicate the terms of a contest to your team (repeatedly) and keep it simple. If it’s a short term contest, sales representatives should understand exactly what they need to do to earn that incentive.

7. I figured out how to calculate sales commissions. Am I done?

No. Sales commission plans need attention. You need to keep an eye on them to make sure they’re serving your team and your organization well. To do that, it’s important to make sure that the terms of your plan are laid out in clear language for any new employees: put it in their employment agreement and discuss it with them in person. Additionally, the reports and analytics generated by commissions offer powerful insights into your company and Core can help with that.

Once you’ve got that plan, we can give it the attention it needs. Contact us to find out more about how Core can fully automate your commission process.

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