The right way to build your first sales compensation plan

Building your first comp plan will be (should be?) one of the more stressful things you’ll do when launching your sales department. Why is it so stressful? Because you’re likely starting from scratch around an idea of what sales should look like with very little data to back up your assumptions. Will your reps be able to consistently hit numbers? Do you really have the leads needed? What are you able to pay your reps? These are just some of the questions that will keep you up at night.

So, what is the right way to build your comp plan? A lot of new sales leaders start crunching numbers on how much they can comp for a new customer, what quotas should be, etc. Don’t do this. That’s the easy part and you can figure out those details later.

Instead, consider your sales compensation plan as your secret weapon to building a great sales culture. Sales leaders have this unique tool to drive the right behavior within their team – not only to produce results but also to make the department a great place to work.

Start asking how you want your sales team to approach their days. How do you want them to interact with customers? How do you want them to position your product? How do you want the team to celebrate wins? What do you want the department to feel like? What are the core tenants of a sales culture you want to build? Create a list of the ideal version of your sales culture from these questions. Maybe yours looks something like this:

  • The sales team should be focused on new business
  • The sales team should trust other departments
  • The sales team should be full of energy
  • The sales team should lead with team

Now, take each bullet and build an incentive to your plan to re-inforce that aspect of your sales culture. In this example, new business is the easy one. Of course you’re going to build a commission structure to pay sales people for new customers. The others are more challenging. Trust for other departments could be incentivized by not fulfilling a commission until a proper introduction to the onboarding team is made and an energetic department could be reinforced by bonusing for achieving a call volume.

What makes a great comp plan?

Once you’ve built this list and some potential ways to incentivize each item, then you can crunch the numbers to create your first quotas, targets and commission structures. I won’t dive into much detail on how to approach this besides giving a few tips:

  • Keep it super simple. If a sales rep can calculate what a close is worth to them in their head, on a call with a prospect, they’ll be more likely to get to the finish line on that call.

  • More upside = more sales. A good rule-of-thumb is an all-in comp plan with ~50% base and ~50% commission/bonuses.

  • Make it uncapped. If the economics work (they should) then give an uncapped commission structure real thought. If you do your diligence before inking the plan, you should feel comfortable paying your reps. In fact, cutting commission checks should be one of your more exciting tasks each month.

After figuring out your quotas, targets and commission structure go back to your list of cultural tenants and build bonuses or other structures into your plan to enforce those ideas. Your comp plan will then be comprised of a base salary, standard commission and bonuses/modified commission to match your tenants.

Try your best to not stress too much. As is the fear of all sales reps, your comp plan will inevitably change but should always start with how you want your sales reps to operate not with what you are willing to pay. A great comp plan can be the best driving force for a great sales culture.

 

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