How do salespeople get paid

For instance, companies realize that success in any field, including sales, involves a certain amount of luck. That attrition can be a problem. So even though there are downsides to making a compensation system more complex, many companies have done so in the hope of appealing to different types of salespeople and limiting the impact of luck by utilizing caps or compensating people for inputs or effort such as number of calls made instead of simply for closing sales.

Although companies tend to be very secretive about their pay plans, researchers have begun persuading them to share data. And companies have been opening up to academics, partly because of the attention being given to big data; managers hope that allowing researchers to apply high-powered math and estimation techniques to their numbers will help them develop better tools to motivate their workforce.

Indeed, these new empirical studies have revealed some surprises, but they have also confirmed some of what we already believed about the best ways to pay.

He persuaded a B2B firm selling office equipment to give him several years of sales and compensation information. This unique data set allowed Steenburgh to look at sales and pay data for individual salespeople and use it to make assumptions about how pay influences behavior. He focused on the issue of timing games: Was there evidence that salespeople were pushing or pulling sales from one quarter to another to help them hit their quotas and earn incentive pay?

Even though the salespeople in the study could receive or miss out on substantial bonuses for hitting or missing quotas, Steenburgh found no evidence of timing games.

That finding was significant, because quotas and bonuses are a large part of most sales compensation plans. In contrast with the firm Steenburgh studied, this company had a relatively simple plan: It paid a salary plus a standard commission on sales after achieving quota, and it capped how much a rep could earn in order to prevent windfalls from really big sales. Such caps are relatively common in large companies.

As they analyzed the data, Misra and Nair concluded that the cap was hurting overall sales and that the company would be better off removing it. A third empirical study of sales rep pay, on which I am the lead author, was published in Marketing Science in Like Steenburgh, we utilized data from a B2B office equipment supplier with a complex compensation plan.

We examined how the components of the plan affected various kinds of reps: high performers, low performers, and middle-of-the-road performers. We found that although the salary and straight commission affected the three groups in similar ways, the other components created different incentives that appealed to certain subsets of the sales force.

Quarterly bonuses were most important for the lower performers: Whereas the high performers could be effectively incentivized by a yearly quota and bonus, more-frequent goals helped keep lower performers on track. Some people compare the way people compensate a sales force to the way teachers motivate students: Top students will do fine in a course in which the entire grade is determined by a final exam, but lower-performing students need frequent quizzes and tests during the semester to motivate them to keep up.

Our study showed that the same general rule applies to sales compensation. Our research also suggested that the firm would benefit if it shifted from quarterly bonuses to cumulative quarterly bonuses. For example, say a salesperson is supposed to sell units in the first quarter and units in the second quarter. Under a regular quarterly plan, a salesperson who misses that number in the first quarter but sells units in the second quarter will still get the second-quarter bonus.

Under a cumulative system, the rep needs to have cumulative year-to-date sales of units to get the second-quarter bonus, regardless of his first-quarter performance. In fact, even before we made our recommendations to the company in our study, managers there decided to move to cumulative quotas. Prior to the use of field experiments, most academic experiments regarding sales force compensation took place in labs and involved volunteers usually undergraduates rather than real salespeople.

In order to earn that higher pay, a sales rep needs to have been working in one lane. However, if you think they have the talent to be a great sales rep, you can always train them on the particulars of your industry. How much should you pay your sales reps. For example, if you want more new business, the commission plan should be weighted toward hunting achievements.

Avoid limiting the commissions a salesperson can make: a great business developer will want to know that their income is as high as the effort they put in. Remember that no matter what the salary, there should always be a clear, attainable sales target—attainable through reasonable, not superhuman, effort. Setting Floors and Bonuses Many companies set a sales floor, as well as a bonus plan for their sales team.

Paying Based on Team Performance A less common, but still used, approach is team-based compensation. The Ideal Scenario The most effective sales compensation programs encourage salespeople to close as many deals as possible as quickly as possible, and then they pay out commissions as close to when deals are done as possible, says Dunlap.

Learn More. Similar Articles. Take your business further with the experts in small business lending Apply in minutes — No obligation Apply Now. Would you rather talk to us? Give us a call This strategy is powerful for companies with more generous compensation plans. It ensures that you are truly compensating your sales team for building the company.

It also encourages your sales reps to consider whether a customer is truly staying for the long-haul, instead of only short-term gains. If you thought that commission was complicated, let me introduce you to another common practice in sales practice: bonuses. Not every company offers bonuses, but every company that does has its own way of structuring them.

Unlike commission, bonuses are not a percentage of your total sales. Instead, they are an extra sum of money you earn by achieving some sort of business goal. Think video game achievements. The point of bonuses is to motivate sales representatives to go above and beyond.

For example, if churn is high, bonuses can be given to reps who have the lowest rate. When comparing your compensation package, it would be remiss to skip over the other perks and benefits offered by your company. Of course, things like healthcare, retirement plans, and paid time off are always a plus. But there are other sales-specific perks you want to check for as well, like:. The reimbursement greatly depends on how the business operates. Beyond compensation, the perks that your company offers can be a draw for talent.

It also encourages your sales team to go above and beyond if they know they will be compensated for it. They might take more time on phone calls away from the office, for example, or drive to see a prospect that might otherwise cost them too much in gas.

Perks for your employees also signal to them that you are a company that will care for their needs and equip them to succeed. This can be another tool for recruiting and keeping your current sales reps happy. Companies cannot thrive without a talented sales team. Sales is what turns leads into paying customers and ensures the growth of your organization.

The best way to attract and retain the best possible team is by offering competitive pay. Without understanding the averages of their industry, many businesses fall short and miss out on critical talent.

Whether you need to pay your team more, offer more benefits, or overhaul the entire structure, you can create an enticing package that will allow your business to grow. Map My Customers is the new way to manage your field data and sales team. Try it free for 14 days. For Managers. By JT Rimbey a month ago 11 min read. What is the Average Sales Commission?

Generally, the size of your commission per sales depends on multiple variables: How difficult is the sale? How complex is the sales cycle? How long does it take to go from prospect to closing the deal? How much experience is needed?