Structuring your commission plan can be a time-consuming and frustrating experience full of many varying factors. Many businesses struggle to strike a balance between company requirements and compensation needs. At motiveOS, we recommend structuring commissions by looking at sales role type combined with your company objectives. This will then help decide the right component mix for each sales rep.
Structure your commissions by: Role + Objectives = Component Mix
While each role in your sales organisation may share the same overarching goals, they do not all share the same responsibilities. Each member of your team may differ in what they sell and their primary focus. Therefore you will need to compensate them differently to get the best result.
Whilst there are many different sales titles and roles across organisations and industries, Salesforce Research outlines the most common types of sales roles can be categorised using the following descriptions:
Business Development: A BDR handles inbound leads which come into the business from a variety of sources (eg. from Marketing campaigns, social media, referrals or website enquiries). Once they have qualified the leads, they establish the relationship with the customer and then pass the now warm lead over to the Account Executive.
Sales Development Representatives: Another more junior role in the sales team is the SDR (Sales Development Rep). An SDR's primary role is to generate leads and spends much of their time brainstorming new ideas for lead development. They are responsible for identifying new business opportunities, generating interest, finding potential customers and then building relationships with these customers to warm them up for the closer (AKA the Account Exec- see below).
Sales Account Executives: Sales Account Executives (AKA the Closer) are traditionally out in the field, but not exclusively - especially in this day and age where more selling is completed remotely. Hubspot states Account Exec's take qualified leads and progress the deal to ensure it gets across the finish line. "Sales reps might perform some additional qualification in certain circumstances, but their primary objective is to close deals. Sales reps are also responsible for demonstrating the product, handling prospect objections, and drafting contracts."
Account Managers: Account Managers are responsible for focusing on existing accounts. They will ensure that the needs of their clients are met, as well as continuing to upsell or cross-sell their company's product and services. However, the main goal for an account manager is client retention.
Sales Support: This role is focused on supporting your team of sales reps with behind-the-scene support such as admin, maintaining the customer database, responding to enquiries and all importantly, assist customer-facing salespeople to close their deals faster.
According to QuickBase, "for your sales team to best understand your strategic initiatives and demonstrate behaviours that will drive profitable growth, there must be a clear roadmap to drive that alignment". There is no such thing as effective selling if it’s not tied to the overarching company goal and strategy. It is clear that great strategy equals great selling.
If selling effectiveness is an outcome of a strong go-to-market strategy, then as a sales manager, this way of thinking can change how you set up your sales team and effectively use and allocate available resources. By aligning goals with the various roles in your sales team, you will set yourself up for success. Some of these goals may include: focusing on new business, targeting new accounts in a new market, upselling to current clients, or selling a new product into existing markets.
Now that you have an understanding of the roles in your team and the objectives your team needs to achieve, you can break down these objectives into components for each role type, and give them a weighting of importance. Once you have decided on the pay mix for each role (eg 50/50 = Base/Variable), this component weighting will impact how they're paid out their variable compensation only. This does not affect base pay and we discuss the best way to determine the right pay mix (base and variable percentage split) in a recent blog on OTE.
When deciding which components should align with each role, you should aim for no more than 2-3 components. Anymore than this may result in the dilution of the positive effects of compensation (having too many incentives) and possibly demotivating the salesperson.
Step 1: Decide on Paymix eg: 50/50 (base/variable).
Step 2: Decide on Component 1 + Component 2 + Component 3 = Variable compensation
Here are the most common types of components that we see being used in Sales Organisations:
Here you can see the component mix and an example of weightings given to each component for a specific sales role:
When deciding on your 2-3 components for each sales role, consider the clear causal link between behaviour and reward (if I do this, then I get that). Below we have given three real-world examples, identifying which components you might want to compensate - you'll notice we use both commissions and bonuses:
Example 1: If your BDR's main responsibility includes booking meetings then you will want to reward them for the number of meetings booked. On top of this, you would also want to compensate them for the quality of the clients they book in, and they, therefore, would be rewarded for some of the revenue closed by the Account Executive. An incentive component split of 70% attributed to booked meetings and 30% attributed to revenue closed is a typical structure.
BDR Variable comp = 70% meetings booked (Component 1) + 30% revenue closed (Component 2)
Example 2: An Account Executive with longer sales cycles could be paid compensation at multiple points along the way to keep up motivation. One way this could be achieved is if your business sells paid pilots before the new business is awarded. Ideally could be compensated when a pilot program (paid pilot) has been secured and then once again when the deal is finally won (revenue closed).
AE Variable comp = 60% paid pilots (Component 1) + 40% revenue closed (Component 2)
Example 3: Optimal plan, shorter sales cycle. Monthly sales commissions, annual cumulative bonus to drive motivation over the year, and as they're entering a new market for every deal closed thats a new target logo a bonus will be awarded.
AE Variable comp.= 60% Monthly sales (Component 1) + 30% Annual cumulative bonus (Component 2) + 10% new logos (Component 3)
If structuring your commission plan has you breaking out into a cold sweat, then get in touch with the commission planning experts at motiveOS. We can step you through our free compensation plan designing tool in 15 minutes, giving you a concrete plan you can confidently present to Senior Management for approval and sign off.