Many commissions plans are easy to understand and easy to administer. Basically, they pay a percentage of revenue or gross profit for every sale. The plans encourage sales reps to sell as much as they can, driving revenue and growth for the company. When paying sales commissions, the company simply multiplies the total sales the rep generated by the commission rate.
Sounds good, right? Not necessarily.
Paying commissions as a percentage of revenue or gross profit works well when selling a commodity product to an established market. This commission plan motivates your sales reps to sell as much as possible as quickly as possible. This means selling the products they know thoroughly and are comfortable selling to customers they know and to whom they are comfortable selling. In other words, sales reps are motivated to stay in their comfort zone.
However, what happens when you are introducing a new product to your customers? Or, introducing your existing product to new markets? In these cases, your simple commissions plan does not induce your sales reps to sell new products or open new markets. The sales reps perceive they can earn more commissions, at least in the near term, by making quicker sales to existing customers.
Tie Commissions to Company Goals
Design your commissions plan to support your company’s goals. Are you looking to expand your customer base? Pay a higher commission on sales to new customers. You can do this with a new customer bonus or by paying a higher percentage for the first six or twelve months. Are you introducing a strategic new product line? New products are harder to sell and often have longer sales cycles. Get your reps on board by offering higher commissions on sales of the new products until the line is established.
When you design your commission plan, ensure commission payouts align the sales reps’ self-interests with the interests and goals of the company. You can tweak your commission plans with higher payout percentages, milestone achievement bonuses, sales team competitions, non-monetary incentives and a myriad of other techniques. When done correctly, your sales reps will be anxious to sell the products you want them to sell to the customers you want to reach. However, you still want to keep it simple, easy to understand and easy to administer. And you can!
Wallace Management Group Can Help
At Wallace Management Group, we’ll help you design and implement sales compensation plans based on your company’s goals and strategic plan. We’ve written sales compensation plans for small, medium and large companies in industries ranging from technology to manufacturing, industrial services, distribution and logistics. Learn more at www.wallacemanagement.com.
We’d like to help you achieve your sales and marketing goals. Contact us at (203) 856-9400 or firstname.lastname@example.org