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Types of Sales Commissions Plans (Advanced) Minimize

SALES RECRUITMENT, SALES RECRUITERS & SALES RECRUITMENT AGENCY

How to Structure Sales Commission Plans

In addition to the basic elements of a target pay commission plan; there are a number of levers or variations that are typically added to:

(i) increase motivational impact to the successful salesperson; and
(ii) balance commercial realities with the need to reward successful salespeople

The graph below helps to illustrate some of these levers.

Setting a floor or threshold for a minimum level of sales performance indicates that a minimum sales value must be reached in the given performance period before any commission is paid to the salesperson. These safe guards are put in place so that commissions are only paid to over-achievers and are not paid to low performing salespeople.   

 

What to Do When a Salesperson Exceeds Their Targets

Putting an accelerator or accelerators into the commission plan is the most common method applied. Put simply, the rate of commission paid is accelerated for every dollar earned above the set sales target.

This encourages the salesperson to not only meet their sales targets, but to 'smash their sales targets'!

Capping Sales Commission Plans

A company may choose to also apply decelerators or caps that kick in once a salesperson meets a particular level of over-achievement. While protecting a business against poor budget setting, decelerators or caps will often demotivate salespeople from really pushing themselves.

Rather than applying a decelerator or cap to the commission plan, it may be more appropriate to have a windfall clause in place to protect the company from any unforseen scenarios such as a change in legislation resulting in a flood of new orders.

Levers & variations that may also be applied include:

  • phases of the sales cycle / number of cold calls made, appointments set, presentations conducted ... 
  • product type weighted plans
  • trailing commissions for multi year deals
  • maintenance agreements
  • other non-financial measures
  • one-off bonuses
  • team targets

Rewarding top performing salespeople at the end of each year with lavish holidays remains a feature of many larger companies and is an effective method of promoting friendly competition amongst the sales team.

A well designed sales commission plan will have a considerable impact on the company's bottom line however to ensure it continues to support the overall business objectives, it should be reviewed on an annual basis.

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