Compensation and commission are two of the biggest motivators for inside sales reps.
A confident compensation plan for each role can help across multiple layers of a business. Aside from the clear performance and work rate incentive, it helps to attract high-quality talent, as well as retain existing top performers.
Getting sales compensation right is critical to your operation’s success. If you want to attract the best talent, drive their performance and keep them satisfied, you need to invest in them effectively. That means rewarding their efforts at the right time.
In this blog, we’ll look at how to manage compensation, your duties as an employer and how to incentivize your teams with commission.
What Is Sales Compensation?
Sales compensation is the amount paid to a salesperson each year. Typically, compensation includes a combination of base salary and commission. It can also include bonus incentives based on performance against targets or goals.
Compensation and commission is part of a wider strategy known as a Compensation (Comp) Plan. This is a structured program that determines how much a sales rep should earn, based on their performance.
The purpose of a Comp Plan is to reward sellers for working above and beyond their job title’s expectations. When used correctly, it encourages greater performance, drives results, and sets standards for compensation across the team.
Why Do I Need to Offer Commission & Compensation Plans?
There are a number of reasons to use sales compensation programs. Its overarching purpose is to encourage positive behaviors and actions. Many businesses use Comp Plans to move towards revenue goals faster, driving performance through commission-based rewards.
Today, a Comp Plan is not simply a luxury. If you want to attract and retain the best talent and get the best return from them, you need to incentivize in the right way. Plus, inside sales is like any other role within a business. There are standards and practices in place that are expected either under law or by the industry.
In the following section, we’ll look at the main reasons to put a confident compensation strategy in place.
Legislation & Industry Standards
Compensation can vary based on location. It is often led by employee best practices and industry standards, or it can be demanded by labor law. This can include whether your state requires you to offer hourly- vs salary-based packages, if it’s an at-will state and state holiday periods. In the UK, for example, your payment must include a pension under the law. This is not the same for the US.
Attract & Retain Talent
A generous Compensation Plan gives businesses (especially newer startups) an advantage in securing experienced talent. Plus, once that talent is on board, you’ll give them reason to stay by updating compensation in line with their performance.
Create Structure & Progression Model
Sales teams have some of the highest turnover rates of any sector. Sales Compensation Plans should discern between junior, mid-level and senior roles. This helps operations managers show that defined career progression for team members exists within your company. It creates another reason to stay, maximize performance, and commit long-term to the business.
Incentivize Individual Rep Performance
It can be challenging to motivate and incentivize reps, especially in larger sales teams. Knowing they could earn more by going above and beyond should help drive performance to higher levels. Plus, additional culture bonuses may encourage reps to take extra training and hone their craft.
How Do I Set Inside Sales Commission?
There is no sure answer for which Compensation Plan you should use in your business. This will be dependent on your team’s sales strategy, structure, targets and headcount.
Base salary is important, but paying commission for performance success is vital. Commission itself should vary based on the rep’s role and position in the funnel. This will display the control, visibility and influence they have over the sale and final deal value.
When you’re defining commission plans, of course they need to be aligned to the business revenue and margins. However, from the reps perspective, make it as simple and transparent as possible – and controllable by them. Your team should feel they can make a difference to their own personal earnings each day, and be motivated to do so. Align commission earnings to the role above all else, don’t naturally align it to the goals of the business.
At Harte Hanks Demand Generation, we break up compensation plans into Top- and Bottom-of-Funnel.
Top of Funnel
If you’re a Top-of-Funnel rep, it’s likely you’ll have a higher base average salary and a lower commission. That commission isn’t driven by product sale value, the margin on that product or the number of years the contract has sold for. Top-of-funnel commission is more volume-oriented. It’s focused on creating MQLs, SQLs or SALs for another salesperson to take control of further down the funnel.
Bottom of Funnel
At bottom-of-funnel, it’s a longer and more complex sales cycle. It’s more strategic, so you need a compensation plan that pays a higher level. It’s linked to the physical sale of the product. You might make this role more of a 50/60 base, the rest being commission. The commission will be higher than that available to top-of-funnel as bottom-of-funnel are physically closing the deal. Commission could be as much as 40/60 or even 50/50.
Compensation Plan Challenges
According to a Society for Human Resources Management survey in 2015, there are three main challenges in creating effective sales compensation.
Quota Setting Fairness
Sales quota based compensation can be the linchpin for sales motivation and retention. If quotas are too aggressive, work rate will diminish. On the other hand if targets are too low, compensation payouts will quickly exceed sales.
To establish competitive compensation and base-to-incentive blend, companies should benchmark each sales role against their competitors. Setting and testing quotas using a verified, comparable source adds an extra layer of confidence.
Experienced inside sales professionals are in massive demand. There’s so much competition inside sales rep salaries and top performers’ commission plans have skyrocketed.
You get what you pay for. Not only are competitive salaries essential for motivation, they’re also critical for attracting the right talent. If you can’t compete with the pay offered by your competitors, this will reduce your competitive advantage when selling your product.
Sales Forecast Accuracy
Forecast accuracy is one of the biggest drivers of effective quota setting and sales rep motivation. A misjudged forecast with unworkable targets is the most common cause of ineffective quotas. This results in sales teams being underpaid, unengaged and poorly motivated.
Creating forecasts needs to be logical and thorough. It should pair market and pipeline data with historical performance and buyer data.
No sales Compensation Plan is perfect. It takes serious review, ongoing analysis and data research.
Reps will always chase higher quota attainment to gain better commission. Naturally, some will be prone to look for loopholes in your program. Equally, your prospects are always changing their preferences and needs.
At Harte Hanks Demand Generation, we’re backed by the experience of supporting hundreds of inside sales teams. From SaaS to leading tech companies, we can drive the creation of your new inside selling team. We’ll help you create Compensation Plans based on rich industry insight, verified benchmarks, and complete performance, success and customer data.
Originally from Iver in the United Kingdom, which she will proudly tell you is near where the Queen lives, Christina moved to the U.S.A. in the early 2010s before founding Harte Hanks Demand Generation in 2015. Fast forward 12 months to 2016 and Harte Hanks Demand Generation had 150+ employees and a 7,500 square-foot facility based in Florida! With 25+ years in sales and operations, the majority of which has been at board level, those who have met Christina would agree that she strives for operational excellence on a daily basis, consistently working to develop the individuals at Harte Hanks Demand Generation.