Situation: A young company is redeveloping its sales department and wants to develop an effective sales compensation plan. What advice do members have for the company on effective sales comp packages? How do you design an effective sales compensation plan?
Advice from the CEOs:
- The first step is to develop broad outlines to the plan:
- What salary range is the company contemplating? What can the company afford?
- What skills beyond the ability to sell will be required? For example, will the sales person require technical skills in addition to sales skills? Or will the sales person need engineering design assistance both in making the sale and in providing service post-sale?
- Who will be the ongoing contact for the customer once the sale is made? Will this be the salesperson, or will ongoing customer contact will be managed by engineering?
- The higher the skill level and both sales and post-sale responsibilities, the higher the potential salary.
- Once the broad outline is decided, set parameters and objectives for the position. The compensation plan should reflect and be consistent with these.
- Third, establish the behaviors that sales people are expected to exhibit. Any compensation plan should reinforce the behaviors desired by the company.
- If salespeople are expected to bring in high margin business, focus and scale compensation based on the margin generated by the sale.
- If an objective is to avoid customers who are bad credit risks, then pay sales people on collected funds rather than on invoiced business.
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