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A Sales Business Plan helps identify critical factors impacting sales team performance. Pipelines are leading indicators of sales success.



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Sales Incentive Compensation Plans

Are you getting the sales results you expect for the money you spend?

Effective Sales Incentive Compensation Plans are designed to maximize performance in a manner that is motivating to the sales team and also provides the company a solid return on investment. There are three phases to consider when designing an Effective Sales Compensation Plan: One, Evaluate the Current Plans; Two, Design new plans; and Three, Implementation.  This three phase process provides an opportunity to review what is working, and not working in the existing plans. With this insight, new plans can be designed to overcome shortcomings in the current plans and create new plans that focus on desired performance.  Finally, the implementation phase ensures that the new plans are rolled-out seamlessly.

One: Evaluate the Current Compensation Plans

Review Goals and Objectives:

  • Are the current compensation plans tied to key performance indicators (KPI's)?
  • Do the current plans effectively influence sales performance?
  • Do they motivate the team to produce results?
  • Is the sales budget providing a strong return-on-investment?
  • What problem(s) will new compensation plans solve?
  • What needs to be fixed?
  • What does the right performance look like?

Review and Analyze Two Years of Compensation Data:

  • Distribution of commissions paid across reps, product lines and territories
  • Quota achievement relative to time in the position, distribution of resources
  • Base Pay vs. Incentive Pay as an influence on performance, retention and recruiting

Two: Sales Incentive Compensation Plan Design

Confirm/Establish Sales Budgets for On-Target-Earnings (OTE):

Total OTE is the amount of money that would be paid to the sales team if everyone made quota. OTE is a combination of Base Pay plus Incentive Pay. Incentive Pay may be further reduced to Incentive Base plus Bonus. The ratio of the Base Pay and Incentive Pay elements to the total OTE impacts the level of risk associated with that compensation plan. As a very general rule, farmers like a larger base pay, more guaranteed income, with a smaller pool of Incentive Pay, that portion of their income that is at risk if they don't make quota. Conversely, hunters will usually opt for a smaller base pay if the "upside" earning potential of large incentive pay is offered. Common ratios include 80/20 plans for farmers and 50/50 plans for hunters. In many industries, and increasingly in this economy, companies are offering pay-on-performance plans that provide no base pay and 100% commissions. 100% commission plans allow for a low initial investment in sales, however, they present costly downsides including high turnover and reduced mind-share.

Describe the Currrent Customer Base:

  • Which vertical markets are currently being served?
  • What is the average low, medium and high revenue per client?
  • What are the Key Performance Indicators (KPI's) in the customer base?

Describe the Ideal New Customer:

  • Do they represent a new or under-penetrated vertical market?
  • What is the ideal revenue per client?
  • What KPI's do they have?

Review the Recent Selling History:

  • What is the average sales cycle?
  • What is the best lead source?
  • Which stage of the sales cycle represents the largest road block?
  • What opportunities were won - why?
  • What opportunities were lost - why?

Review Anticipated Market Influences:

  • What competition is expected from companies, people, processes and/or technology?
  • Are there other, known, influencing events that will impact sales?
  • What is the history and outlook for these influences?

Review the High Level Sales Strategy:

  • Document the team charter, including: roles, responsibilities, territories and products.
  • Define the sales process, including: sales steps, average sales cycles, and out-lying exceptions.

Design the Sales Incentive Compensation Plan:

  • Establish OTE per rep/position.
  • Select and prioritize the KPI's that will be used to measure success.
  • Divide Incentive Pay according to KPI priorities.
  • Define commission payment events, for instance: based on accounts receivable conditions, month-end or quarter-end, implementation, trial, acceptance test, etc.
  • Define bonuses and/or accelerators to be paid for outstanding performance.
  • Define decelerators to be applied for below quota performance.
  • Define Excellent, Good, and Minimum Acceptable sales performance.

Three: Sales Incentive Compensation Plan Implementation

  • Establish effective date(s) for new compensation plans.
  • Ensure Human Resources, Payroll and Finance are engaged.
  • Design and prepare to deliver tools and training to calculate commissions.
  • Perform a management dry-run presentation.
  • Deliver final compensation plans to the team.

Closely monitor compensation plan influences on pay and performance at regular intervals. Compensation plans can be supplemented with SPIF's and contests to add excitement and incentives to existing plans emphasizing desired performance.