Before designing a new sales commission plan it is important to remember it’s not about the arithmetic, it’s all about the psychology. So what behavior do you want to achieve with your plan? Here are some questions to help:
- What % of the total on target earnings (fixed plus variable) do you want to be variable? 50% allows you to use the phrase, you have a chance to double your money!
- Are you capping the commission? And if so what’s your story?
- Have you considered the pain of an exceptional monthly performance generating an exceptional monthly commission check but the quarter turns weak?
- Does your plan address legacy products not selling well, or do you care?
- Can the sales professional monitor her own performance and calculate her commission check easily?
- Are you penalizing your salesperson for bad debts?
- Are you expecting Team Leaders to manage staff and close their own deals? Be careful.
- Do you have a policy for dealing with accounts where two sales team members work on the same deal?
- Have you considered guarantees for the first 3 months of a new sales person?
- Are you paying out different rates for new customers v renewing existing customers?
- In subscription type deals are you wrapping your commission structure around the whole annualized deal or paying on a monthly basis?
- Have you considered Team bonuses in addition or alongside personal bonuses?
- Are you relating commission payments to stage payments made by the customer?
- If sales targets are set in dollars, have you signed off a currency rate for non dollar denominated commission?
- If sales performance is weak in quarter one, are you allowing the sales person to catch up lost ground in later quarters?
- If an element of maintenance is involved, how do account for late renewals beyond the deadline?
- In early stage product launch situations, do you care about the $ amount or the volume of business won?
- Should you consider ratchet structures that pay generously on slivers of sales way above target levels?
- Have you considered non monetary rewards that may matter more to certain individuals? (eg time off, educational sponsorship, new toy!)
- Have you allocated a reserve within the commission budget, for one off prizes for exceptional team performances?
Previous post on this topic linked to a worked example here which you will find helpful.
