The Responsibility of Running a Sales Compensation Plan is Huge!

A motivation scheme has the potential to bring terrific results in terms of increasing revenues, meeting goals, and spurring the sales team to greater heights.

However, a sales scheme can also have the opposite effect. If not properly designed, a sales scheme can demotivate people, harm the sales force, and have a dramatic negative impact on the sales numbers and productivity of the company.

There are three pitfalls that managers must be careful to avoid:

  • salespeople incorrectly misinterpreting the system (this is often a problem of lack of clear communication from the management).
  • salespeople using the system to their advantage when it fits their strengths towards selling certain products, but not using it correctly at other times.
  • salespeople noticing that the system hardly adds much to their pay packet, and therefore not engaging with it.
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How to Set the Right On Target Earnings for a Sales Person

The target pay level is the sum of money a sales person will get from both the fixed and variable parts of their salary combined. It includes all types of incentives and one off random sales contests, but does not include benefits. 

The target pay is also known as the target total compensation, or total target cash.

This is a vital figure for everyone – sales people want to know what they can earn, and sales managers want to know what they will pay.

The Two Components Of The Target Pay Level

There are two parts to the target pay level:

The fixed salary. This is the amount a sales person gets on an annual basis, and is normally quoted as a gross amount. Many organizations have a flat salary structure that pays different amounts to sales staff depending on their experience and skills. Other factors that affect the fixed salary include years of service, number of contacts in the target audience, and their knowledge of the competition.

The variable salary. This is decided by the commission or bonus scheme in operation. The variable scheme follows the philosophy of the company, the particulars of the job role, and the objectives of management. The variable part can take many forms, including straight commissions, bonus schemes, a team pool, etc. Some variable salaries are created for specific roles.

The correct target pay level is an essential part of a company’s success. Every company that relies on sales needs a stable, effect sales team in order to succeed. An effective target pay level helps keep sales staff motivated, and increases staff loyalty, building a stable and reliable team.

Three Attributes Of An Effective Target Pay Level

There are three attributes that makes for an effective target pay level:

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Sales Motivation Schemes and Employee Turnover

Any organization that wants to conquer their market must rely on the quality of their products and their brand name to do so. Product development teams must work hard to design, produce, and enhance their products, and they cannot stop there. Once the product is launched they need to keep it updated, upgraded and competitive so it can continue to bring value to the customers, and revenue to the company.

However, it is not the job of the product development team to take the product to market. That is the job of the sales team, who are responsible for identifying the regions, companies, and people to sell the product to.

Sales Is A Complex Process

Selling is not a straightforward process. In order to succeed it needs:

  • Proven methodologies
  • A plan
  • Persistence and desire to succeed on the part of the sales team
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Dealing With Specific Areas Of A Sales Compensation Plan That Are Often Overlooked

Designing a sales compensation plan is not limited to just the decision of the commission percentage to give to a sales person when one closes a deal. Is not just the set of a sales target. There are many small areas that the sales compensation and incentives policy should address. Below the most important ones to consider.

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