How do You Pay Sales Reps? Two Examples

Situation: The Company is considering two options to pay sales people – base/draw plus commission, or no base/draw and larger commission. What do other CEOs find most successful?

Advice from the CEOs:

  • Align your sales incentive plans to your company objectives. Two examples, one of an aligned system and one of a dysfunctional system:
    • Aligned System
      • Sales reps are 100% commission (including expenses) with no caps on income. They are measured by two sets of metrics.
      • To keep their jobs, they have to achieve a minimum of 85% of their revenue goal. Fall below this and out the door.
      • However, commissions are calculated on the gross profit achieved on sales, and reps are provided with software to calculate GP and commission.
      • This company is the most successful in its market.
    • Dysfunctional System
      • Sales reps are paid a base plus quarterly commissions calculated on achievement of revenue goals.
      • The net result was that reps had no incentive to preserve gross margins.
      • The result was constant conflict between sales and finance; the situation only started to improve as reps’ commissions were converted to a combination of revenue and margin.
  • Issue: what is the role of the rep within the sale?
    • Is the rep a door opener or a closer?
    • What percentage of the close is attributable to the rep?
    • In a complex or staged sale, allocate commissions based on contribution to the close. Reps who can’t close are not as valuable as those who can.

Key Words: Sales, Commissions, Commission Plans, Objectives, Alignment 

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