Compensating sales reps is tricky. It's difficult to define the right mix of base salary and commissions that will motivate sales reps to maximizie your business revenues and profits.
Keep the goals of your business in mind. Do you want to compensate on margin, on gross revenue, by product, or perhaps a combination? Here are some suggested guidelines:
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Be specific and simple. The more specific you are, the clearer your plan will be. Limit exceptions.
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Be fair. Organizations sometimes get a little stingy in their compensation plans. When individual sales plans are achieved, pay them for it.
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Balance risk and reward. The more risk the salesperson takes, the more the company will have to give in base guarantee, such as a salary or draw. The less risk the sales person has to take, the less the base pay.
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Add incentive. Commissions come in many forms: percentage of overall revenue, bonuses, strategic contests plus stock options. Either way, stay focused on the overall market penetration objectives of your company.
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Categorize compensation. Allocate sales rep compensation into three categories: salary, weekly or monthly commission, and quarterly or annual bonus. The key variable at your discretion is the bonus. A good rule of thumb is to allocate 10% of total compensation for bonus programs.
