How to Design a Successful Sales Commission Plan

How to design a successful sales commission plan

When it comes to determining an effective sales commission plan, there are multiple factors that need to be taken into account. To help you figure out what your best options are, this article will break down the various aspects that are involved in making a successful plan. 

If you want to keep your employees motivated and happy with their commission plans, this is the article for you. This article will give you all the information you need to make an informed decision on how to best motivate your staff through commission plans.

Sales commission plan definition

A sales commission plan is a type of compensation strategy that’s used to maintain an organisation’s staff and motivate them to perform well. Typically, commissions are paid based on the sale of products or services. Sales commissions can be calculated as a percentage of the sale, or as a flat amount.

Sales commission plans typically involve three parties: The company, the customer, and the employee. It’s important for each party to know their role so they can work together to achieve success!

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Different types of sales commission plans

Sales commission plans are one of the primary motivators that an employer sets for their employees who are in charge of selling their company’s products.

There are two main types of sales commission plans: the commission only plans and the salary plus commission plans.

The commissioned only plan is exactly what it sounds like – commissions are paid out on a commission-only basis, regardless of whether an employee succeeds or not. It’s up to the company to determine how much money they pay their employees for commission-based work, so it can differ from one company to another.

The guaranteed salary plus commission plan offers some level of security but also has a commission component. This means that if an employee doesn’t succeed, they still have some additional income coming in through their base salary.

What are the most common commission plans?

This article will focus on three types of sales commission plans.

Percentage

Your sales reps are paid a percentage of the total revenue they generate for the company. For example, if an employee generates £200,000 worth of revenue for the company, they could receive 10% of that amount as commission.

This type of commission plan is also known as a “percentage” or “performance-based” plan. This method should be used when employees have a greater degree of control over their work and you want to motivate them to take risks and make more ambitious deals.

Fixed

This commission plan is deployed where employees are paid a set amount for achieving predetermined revenue goals or KPIs, also known as a “fixed” or “fixed-rate” plan. This method should be used when you want to reward your employees for completing collective tasks.

An example of this plan would be to hit a revenue target and achieve specific activity KPIs, and then they would get a fixed commission of £1,500 per month, regardless of the size of the target.

Recurring

The third type of commission is often used in early-stage businesses to incentivise aggressive growth. A recurring commission plan will reward the salesperson for the entire lifecycle of the client.

A contract is worth £10,000 a year to the business, then a percentage commission might pay 10% of the £10,000 value (£1,000), whereas a recurring commission plan will pay a commission for each month/quarter/year that the client pays the business, meaning the salesperson can expect a commission of £1,000 every year as long as the client stays with the business.

These plans are usually phased out in later-stage businesses as they are very expensive to run.

What to Avoid in a Commission Plan

There are a few things that you need to avoid in commission plans if you want them to be successful.

First of all, make sure your commission plan includes a range of rewards. You want to ensure that above all else, the commission plan is incentivising the right behaviours.

Secondly, try to avoid using capped commission plans. You want to give your employees the opportunity to work their way up and earn more through their efforts and results rather than having fixed earnings. If you salespeople are earning good commission, then the business will be doing well!

Thirdly, keep it simple. If your sales commission plan is too complex, salespeople can ‘switch off’ if they cannot easily understand what they can earn, and how they can influence that outcome.

Lastly, make sure your commission plan is fair and equitable for all staff members by considering factors such as base pay, skill level, time spent on different tasks, etc.

Conclusion

A sales commission plan can be a great way to incentivise salespeople. But before implementing a plan, it’s important to set a few guidelines in place.

First, define the different types of sales commission plans and their advantages and disadvantages.

Next, decide which commission plan best matches your company’s needs.

Once your plan is in place, you can add in some best practices to avoid pitfalls that lead to unsuccessful commission plans. With the right plan in place, you’ll have a sales force that’s ready to take on the world!