Business Tips

Types Of Sales Commission Plans

In virtually all types of sales commission plans, the sales representatives are expected to collaborate in order to find a method to pursue the sales opportunities by themselves, in pairs or in small groups based on their strengths. However, the method in which the sales people are compensated or rewarded for how much they contribute can be determined in a number of different ways. Any company that is considering a change in their sales compensation plan or those who are wondering which one would work best for their representatives should first become more familiar with the options that are currently available.

The commission plans here represent a few of the options that are most commonly used for sales representatives. However, many sales management teams will combine the various elements of each of the plans in order to create a custom option that meets the needs of their particular business. When the right commission plan is developed, it will lead to harder working sales representatives who are willing to stay with a company even in slow or lean times.

The Straight Salary Commission Plans

This is one of the rarest of all the sales commission plans. With the straight salary commission plan, there are not ever any commissions given and very few, if any, type of incentive. There is a good reason for this type of set up. The salary for the sales people who work under this type of compensation plan will be extremely competitive, which means while there is no extra money, the compensation that is provided is higher than what is seen in other companies that offer commission and incentive plans. This can make working in this type of commission plan worthwhile. This type of commission plan is most frequently seen and used in the following situations:

•    The actual regulatory structure of your industry, where the commission plan is being used is prohibiting any type of direct sale.

•    The sales representative’s work in regions or districts as small groups or teams and the contribution of each of the members of the sales team is expected to be approximately equal.

•    The sales teams are considered relatively small and they do more than just sell.

Commission Based Plans that Feature a Salary Component

The types of sales commission plans that include commission along with a base salary are considered the most commonly used options. Most often, the sales representatives will encounter a compensation plan that relies on much more than just salary or just commission in order to arrive at the total amount of compensation. These plans are right when:

•    The organization understands that the previous sales representatives have handled the percentage split well.

•    There are a number of opportunities in the actual marketplace in order to support all the sales people that are working for the company on the better paying commission structure.

•    There are various methods that can be used to track sales in order to ensure that the split of commissions is accurate and fair.

Territory Volume Commission Plans

If you have an organization that is team based, then you will likely be most familiar with commission plans that calculate the territory volume. When the end of the compensation period arrives, the sales that a territory eared are then calculated and then the commissions are split amongst all of the sales people that worked in the territory, in most cases completely evenly. These are the types of sales commission plans that will work best when:

•    Any sales representatives that are extremely networked and connected to each other in order to support the team approach to selling.

•    When there are clearly outlined sales territories and sales teams are not competing with one another for the exact same targets.

•    The territories are rich enough for supporting competitive wages with the use of sales commission plans that rely on a volume calculation.

Revenue/Profit Margin Based Sales Commission Plans

This is the type of sales commission plan that will reward sales representatives based on the performance of the company. In most cases, these are start-up businesses and virtually always entrepreneurial. Any organization that relies on this types of sales commission plan do it for a number of reasons, which the primary one being that they do not have adequate liquidity during the early stages of the start-up, but they want to be able to encourage employee loyalty. This type of commission structure will work best for:

•    Any sales person who is extremely driven and who is able to support themselves during early or leaner periods when the margins and revenues may not be completely predictable.

•    Any organization that is also able to implement various long-term incentives, such as a stock incentive, in order to encourage their sales people to take a look at the long-term sales and also build a sales base.

•    Any organization that has other incentives that will attract the top performing sales individuals, such as the non-financial attractions including flex time.

There are no two sales commission plans that will be completely identical and that is mainly due to the fact that no to businesses are exactly the same. The type of sales commission plan that you opt to use and the one that your sales representatives will accept will be dependent on the overall market, as well as the goals of the different people who are involved.

In many cases, you will have to really think about what works best for your business. One of the exact plans outlined here may not be the ideal solution. As a result, you should combine aspects of one plan with those of another. The key to find a plan that works for you and your sales team is to evaluate your current need and what your company is capable of providing.

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