Are Sales Commissions the Most Important Element in
Your Sales Action Plan?

Sales commissions are good incentives for sales people. Build a strong sales commission structure to hire the best sales team; and to keep them focused on your sales action plan and on closing sales.

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Many businesses offer their sales team commission programs - they are the most common way of paying sales representatives. And if you want to achieve your sales targets, your commission structure may be the most important part of your sales action plan.

Why? Because sales people want to be fairly compensated and you need to provide them enough incentive to do a hard job. Selling is not easy.

There are many variations on sales compensation plans that you can follow to build the right plan for your sales staff.

You can also try to access sample sales incentive plans through your industry association or through your local human resources association.

Deciding what (and how) to pay your sales representatives is difficult ... and it's hard to be right.

Developing compensation programs is always challenging.

From my experience, the best sales compensation program is a combination of commissions, base salary and alignment to your business goals through your sales action plan.

Compensation and Sales Commissions

8 Elements Your Sales Compensation Plan Needs to include:

1. Never offer straight commission or commission-only: commissions-only will create too much independence and/or alienation in the relationship between the sales representative and the business;
2. Ensure that credit decisions made by the accounting department are not charged back to the sales representative; you will also need to ensure that there are good credit policies in place before the sales representative makes the first customer call;
3. Have a good customer service representative program that is aligned to the sales representative program and aligned to the sales action plan outcomes (your sales and service goals and objectives).

   The program might be based on support to the sales representative, support to the customer, percentage of the extra value-added billed (compare the original estimate to the final invoice); percentage on invoicing for changes or extras, etc.;

4. Ensure that the commission structure is based on the final invoiced amount;
5. Ensure that the base salary is enough for the sales representative to live on – in a very basic way (pay rent or mortgage and bills) - if they can't survive the slow times, they will leave your business;
6. Pay out commissions on a monthly or a quarterly basis – sometimes this is done by the business providing draws or advances against the expected commission (this can be a challenge to calculate and if you over-advance the amount, you will need to either deduct the overpaid dollars from the next commission check or you will have to ask the sales representative to give the money back. Quarterly payments seem to be the best managed; pay-out after a certain volume is reached.

   It is important to review sample sales incentive plans for your industry to ensure that you, at least, meet the industry standard and, at best, do better than industry standard in order to hire and keep the best sales talent.

7. Include a bonus for opening a new customer account (for example, if your sales representative opens a new account that is expected to be worth $100,000 annually – write her or him a check for $2000 immediately. Remember that a new account will return that amount many times over the lifetime value of the account.

   If you don't want to provide a bonus for the new account opening, then pay a higher commission on the first two years of a new account (say 7% compared to 5% for existing accounts). Focusing on, and rewarding for, new account development will ensure that your sales team also focuses on new accounts, not just maintaining existing accounts.

8. Consider a value-added commission structure: particularly for maintaining accounts, it will focus your sales team on up-selling the extras (the billable value added features). This structure also fits well if your sales strategy is focused on value based sales or relationship-based sales (have your sales staff build their own sales story).

As a small business owner, you need to recognize that your commission structure needs to be built in a way that will encourage sales representatives to focus on what you want them to focus on: your small business plan and goals.

Once you've developed a sales commissions and sales compensation plan for your sales representatives, review it annually to make sure that you are getting the results that you want and need from the sales team and the compensation program and that you are meeting your sales plan objectives.

Remember the role of human resources in your business and remember that your people are your most important resource; pay them well, employ them wisely and you will enjoy sales and business growth.

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