9 Key Steps to Sales Compensation Design

Are your sales low? Margins thin? Do you experience high turn over in your sales department? Worse yet, do you tend to attract and keep low-performers? Have you considered you sales compensation plan as a cause for some of your problems? If you haven’t, you should.

One point before we get started: Sales compensation plans are not a substitute for good sales management. You need to have both.

Here are nine keys to properly designing a sales compensation plan:

  • Assess your needs.
    • How effective is your existing plan? Is it in line with and does it contribute to the accomplishment of your corporate goals? If not, what needs to change?
  • Set compensation plan objectives.
    • What do you want this plan to achieve? Growth, Greater Service, Profitability, Customer Focus?
    • Your plan should not merely address short-term financial issues.
  • Define the sales reps’ role.
    • What role do sales reps play in finding, cultivating and keeping customers? What challenges do they face?
  • Establish the pay range.
    • Determine what you can afford to pay and how competitive you want your pay structure to be.
    • Where have you current reps come from? Where do those who leave go? Answers to these questions will provide insights into some of the most basic elements of making your sales compensation plan more competitive.
  • Design the plan.
    • Make it understandable, equitable, flexible, achievable and measurable.
    • Although “simple” is good, if you’re not careful you can be “simply” wrong,
    • Your sales team will more likely embrace a plan that is realistic, free of caps, based on performance factors they can control, and guaranteed not to change midstream.
  • Test the design.
    • Using previous actual performances and/or projections test how close your new compensation plan comes to your pay strategy. Modify if necessary.
  • Train the sales plan administrator and sales manager(s).
    • How well they understand the new compensation plan and their ability to explain its intricacies to the sales team are key contributing factors to the plan’s effectiveness.
  • Communicate the plan.
    • How well the new compensation plan is communicated to the sales team will be a key factor to its success or failure.
    • Be prepared, be open, and follow up with answers to questions or concerns promptly.
  • Implement and monitor the plan.
    • Set frequent meetings with the sales manager(s) and the plan administrator to review plan performances. Use field feedback and observations to fine-tune the plan for the following year.
    • Make immediate changes only to correct major design flaws.

What are your thoughts? Let me know of any additional steps to consider or perhaps a different approach. I look forward to your comments.

Photography by Brooks Elliott

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John Kypriotakis is the President of Lysis International,
a Tampa based Sales and Management consulting firm,
specializing in B2B Sales, Management and Leadership.

www.SalesAndManagement.com
813-792-8500

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7 Responses to “9 Key Steps to Sales Compensation Design”

  1. John …you’ve laid this out quite nicely in just a few hundred words. I like the pragmatism of the 9 step plan and this is very good guide for any sales leader but in particular for a CEO or sales leader in a smaller business.

    Geoff

  2. […] few days later, I came across this terrific blog called 9 Key Steps to Sales Compensation Design which I thought was both timely and complimentary to what I’ve introduced. The writer, John […]

  3. Thanks for posting this article, it’s helped clarify a few issues. I know of a great tool for generating sales compensation and commission statements, it’s from OneClick Commissions and turns my excel sheets into commission statements (best part is it’s super easy!)

    Hope this helps 🙂

    Annette C.
    Sales Compensation

  4. A very well-written and helpful article! Awarding sales compensation is a lot easier when you are able to keep accurate records for each member of the team and present it easily.

    Rita R.

  5. Charlotte74 says:

    That’s a great list and very helpful in designing a sales compenasation plan. You’ve got to get a balance between motivation and ROI.

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