National Sales Center

Sales Compensation Plans Made Easy

By, Nick Moreno

WE OFFER NO LEGAL ADVICE ON SALES COMPENSATION PLANS

THIS ARTICLE IS OUT OPINION ABOUT SALES COMPENSATION PLANS

QUESTIONS ABOUT SALES COMPENSATION PLANS SHOULD BE ASKED OF A LAWYER IN YOUR STATE

Developing sales compensation plans can take many twists and turns. Obviously, commissions must be used as a prime motivator. Also, most corporate sales compensation plans include a salary. In this article, I want to explore additional elements you may use in sales compensation plans.

Cap Verses Non Cap In Sales Compensation Plans

Some sales compensation plans limit the amount of commissions a salesperson may earn. These “Caps” can be applied yearly, quarterly or they may be based on order size. There may be some good reasons to cap commissions but I can’t think of any. Would you expect less from a life long salesperson? Besides, don’t you want your salespeople to keep selling even after they’ve achieved a certain level of productivity? A caped sales compensation plan is like telling your best reps to stay home once they’ve hit the maximum amount of commissions they can earn.

I prefer sales compensation plans that are not caped. The more revenue you bring in, the more commissions you earn. Non-caped plans will keep salespeople active through the year and that’s an important piece of sales advice.

Sales Compensation Plans With A Draw

A commission draw is a way to help salespeople manage cash flow. A draw is an advancement against future commissions. So, you give a salesperson $600 one month and then deduct it from their commissions the next month. These draws are often, but not always, found in sales positions that don’t pay a salary.

If a sales rep leaves a company with a negative draw balance, recovering the outstanding commissions will probably never happen – but it could so keep this mind. Many sales reps ask they have to pay back outstanding draw commissions if they leave a company. Ask an attorney about draws and your States position about them in sales compensation plans. We offer no advice on the subject.

Sales Compensation Plans With Bonuses

Bonuses are a great way to keep your top salespeople motivated. Using bonuses, you increase the commission rate after a certain amount is sold. The first $100,000 in sales earns 10% commissions but the second $100,000 in sales earns 15% commissions. Salespeople love to be in bonus territory when it comes to sales compensation plans.

Bonuses may also include higher margin products or slow moving products. Get reps focused on selling these products by paying them a special bonus. Sales compensation plans drive behavior.

Sales Compensation Plans With A Forgiven Draw

Some draws are forgiven so the rep never has to pay back the outstanding balance. Typically, these forgiven draws are given to new hires. In many sales situations, it could take three months after a sales is made for the salesperson to receive a commission payment. A forgiven draw bridges that three-month delay. Companies that don’t want to straddle their new hires with an outstanding balance may elect to forgive any outstanding draw amount after the initial three-month period.

Sales Compensation Plans Advice

Sales Compensation Plans must be easy to understand so please keep them simple. Salespeople need to be able to calculate their commissions after a deal is closed. Sounds simple but I’ve seen way too many complex sales compensation plans. There is no benefit in having a sales compensation plan that no one understands.

The happiest day in your office should be the day commissions are paid! If so, you got a hot sales team and hot sales compensation plans!

Nick Moreno

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Tags: sales advice