How to design a fair and attractive sales compensation plan?

Sales compensation is probably one of the most talked about topics in the B2B world.

Before we get into the nitty-gritty, it’s worth taking a step back from the sales bonus: the best salespeople will always play both sides of the fence – the customer side, and the employer side, with the aim of maximising their income.

In reality, therefore, the sales bonus is not so much a purely economic calculation or a motivational lever as an effective means of directing the efforts of your teams.

We won’t go over the basic rules already written everywhere else (keep it simple, but not too simple; variable, but not just variable, etc.). Instead, we propose a few questions to ask yourself in order to make the right decisions and anticipate the resulting trade-offs.

How to calculate a salesperson’s bonus? Variable or fixed remuneration? What bonus on turnover? Should you opt for commissions or target bonuses? We tell you everything here.

#1 Commissions or target bonuses?

Commissions

In terms of variables, the most common practice is commission. This involves linking part of your salespeople’s income to the revenue they generate – a percentage of sales or margin, for example. The ultimate goal is to get your employee involved, to motivate them to sell more.

However, depending on the sales cycle, these commissions can be irregular and cause your salespeople to lose motivation because they know they won’t sell. In addition, when you recruit a new salesperson, their performance will not be optimal in the beginning and their income will suffer.

From a purely commercial point of view, this is a motivator to sign up but not necessarily to generate leads. If you don’t carefully follow your conversion tunnel, the risk is that your sales people will exhaust their leads very quickly and then struggle to generate business. Overall, respecting the sales processes you put in place will not be their priority.

From an organisational point of view, this does not allow you to share tasks with a team of SDRs dedicated to canvassing and initial qualification and a more senior one for closing deals.

Finally, a salesperson who is variable on a percentage of his or her sales will very often have an interest in selling at the lowest possible price, and selling often, especially if the average baskets are high.

For example, for the calculation of a real estate agent’s commercial bonus:

• Increasing the sale price of a flat from €200,000 to €220,000 (a 10% increase) implies a significant increase in the time taken to sell.
• For the agent, who receives a commission of up to 5% of the sale price, this means earning €11,000 instead of €10,000.
• It is therefore much more in his interest to try to sell two properties at €180,000 rather than one at €220,000. But it is not at all in the seller’s interest.

Easy to implement, commissioning does not incorporate the notion of exigency and does not allow you to take an interest in the way your salesperson sells, if he or she has undercut prices, neglected customer follow-up, made promises that your teams will not be able to keep, etc.

Target bonuses

Target bonuses also pay salespeople based on the revenue they generate but work on a tiered model. For example, for €10k generated your sales people will get a bonus of €1k. Below that, they will receive nothing. And above that, they will always receive the same amount.

This solution will give your salespeople a strong incentive to reach the target, while allowing you to adjust the target. This way, you can set the cursor differently for salespeople who are less likely to close sales. For example, juniors who are involved in first contact & sales qualification.

For this to be effective, your target must be precisely defined, which requires a very good knowledge of your KPIs & market. Furthermore, once your sales people have reached this target, motivation will drop. You should not expect any additional results.

#2 Personal or corporate goal?

Another important trade-off is how to weight the individual and company performance objectives.

Personal objectives: indexed to individual performance

Focusing personal goals on individual performance is a powerful motivational lever. It is a very strong lever that will push your sales people to generate maximum revenue.

However, it could also create a climate of competition and rivalry between salespeople that could be unhealthy and even counterproductive. Indeed, it could lead to a lack of cooperation within your teams.

You could end up with salespeople who don’t want to answer their sick colleagues’ emails because they won’t get the sales. In the worst case scenario, your salespeople will spend more time competing for the best leads than selling.

Business objectives: indexed to business performance (e.g. EBITDA, or turnover).

Instead, corporate goals encourage your staff to share best practice, helping each other to take on colleague leads when necessary.

Logically, this solution may be perceived as unfair by your most successful salespeople who generate significant revenue. This is a fact to be taken into account in order not to make your best elements “flee” to the competition.

On the other hand, if your company over-performs, it could cost you dearly if the objectives are poorly calibrated. It is therefore necessary to anticipate this risk well through an excellent knowledge of your market and your possibilities in it.

#3 How much variable?

Should you opt for 100% variable pay?

Let’s imagine that a sales team can be paid on a variable basis only, for the year. The obvious advantage of this option is that it provides a strong incentive for salespeople to penetrate a market quickly, for example. You also take little risk because you will not pay any salary if no sales are made.

However, the risks and limitations of this solution quickly become apparent. Indeed, your sales representative is encouraged to go and get as many deals as possible in his or her sector. This short-term vision will have a direct impact on the customer relationship, which will not be the main concern of your sales representatives.

There is also a commercial limit to 100% variable. Your sales representatives will have to work hard at the beginning to reach their objectives, especially if they start from scratch. On the other hand, when they are more established in their sector, they will be able to reach their objective with the help of the restocking. They will therefore be less inclined to seek out new prospects and generate growth.

Depending on the profile of your sales person

It is difficult to give a clear and definitive answer on the subject of the variable portion to be favoured. It depends on your activity, your positioning and of course the profile of the salespeople in question. Thanks to a study by Maesina in 2016, we can give you an example of the variable pay of salespeople for each sales profile in France.

• Sales manager: between 15 & 25%.
• Head of Sales: between 13 & 23%.
• Export Sales Manager: between 15 & 25%.
• Key account manager: between 5 & 15%.

This can help you to calculate the turnover bonus for your sales staff.

If there is one thing to remember from this article, it is that the remuneration model is in reality much less a purely economic calculation than an important lever for directing the efforts of your teams. This variable part must stimulate a commercial dynamic in your teams.

However, this should not be to the detriment of your prices, customer relations or commercial follow-up, which are also a strength of your company. A good compromise would therefore be to maintain these quantitative criteria while adding qualitative or collective criteria in order to be able to evaluate the quality of the customer relationship.