What Compensation Plan is Right for Your Company?

Companies that rely on salespeople have long had to balance the need for motivational and fair compensation with the bottom line. New sales commissions and incentive plans are often developed to inspire and reward high-performance.

Deloitte: the challenges of sales compensation

In a recent report, Deloitte discusses sales compensation challenges and offers their points of view. Topline is that sales compensation involves aligning all aspects of plan design, from pay mix to target setting to the product and market strategy. What follows are a few of the report’s highlights.

Commission-based plans vs. target-based plans

Commission-based plans are better suited for high-growth opportunities dealing with a single market or product line. Sales cycles are shorter or straightforward; sales roles are “seller driven,” and sales potential are relatively equal by territory or account.

By contrast, target-based plans feature multiple markets or products in maturing industries with low to moderate growth. Cycles are longer or more complex, roles are team-driven, and sales potential is often unequal, driven by geographic assignment.

Pros and cons of commission-based plans

Pros: Commission-based plans are more effective in motivating sales of new products or when entering new markets. They’re simple to understand, have low administrative costs, and reinforce the notion that the salesperson is an independent agent.

Cons: All sales and products are treated equally; one size fits all. Salespeople control how much they want to make. Commission-based plans aren’t necessarily conducive to building long-term account relationships. And provide management with little ability to motivate sales.

One sales commission plan does not fit all companies.

Compensation plans can be simple, from straight commission plans to tiered commissions to a combination of fixed and variable pay. In the following chart, Deloitte gives a basic breakdown of which type of compensation plan works for particular company situations.

One thing to keep in mind is that adjustments—such as individual or team commission rates—can be made to any plan to motivate and remunerate your salesforce properly. Which brings us to the need for robust sales performance software.

The need for sales commission software

As your number of salespeople and transactions grows, more time will be needed to calculate commissions and run reports. If this is done manually with spreadsheets, calculation errors will inevitably occur. This leads to complaints—and possibly distrust—from sales staff.

What’s more, HR or Finance must take the time to correct the resolve the issues and communicate the corrections to affected parties. If recurring reports regularly produce errors, the costs add up, especially when those doing the revisions could be doing more productive tasks.

Another issue may come in to play. As your incentive plans evolve, there will be an increase in complexity, validating compensation calculations will take longer, and reporting deadlines will become shorter and potentially leaving sales comp administrators no room for errors. Complex calculations are significantly more likely to have mistakes occur, and the cycle mentioned above repeats itself.

All of which often points to the need to automate your commission calculation process with sales commission software or a sales performance management solution.

Performio: sales performance management that’s fast, accurate, and dependable

Performio provides sales commission software that’s ready right out of the box, yet you can configure it to incorporate new incentive formulas without outside help. Sales performance, incentive compensation, and data management tools accurately calculate and report sales commissions, no matter how complicated your compensation plans.

Your salespeople receive timely, easy-to-read reports and leader-board rankings. Management quickly learns what incentives are working and which are not, as well as how salespeople are performing. Miscalculations are mitigated, performance is elevated. A SaaS-based system, Performio has saved more than 500,000 administrative hours and calculated more than a billion dollars in commissions.

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