Tying Sales Compensation to Sales Quotas
Most salespeople are highly money-motivated. Ask a top salesperson how much money he wants to make next year and the answer will almost inevitably be “As much as possible.” So getting your sales team to meet – and exceed – their sales quotas can be as simple as setting up the proper rewards.
A floating compensation plan can reward the superstar performers while lighting a fire under those salespeople who tend to miss every quota.
Essentially, you peg different commission rates to different levels of achievement. To look at a specific example, let's say that your widget sales team has a goal of 100 widgets per month sold. You decide that a salesperson who sells exactly 100 widgets will get a 25% commission. If a sales rep sells only 80 widgets, he gets a 20% commission. If he sells 60 widgets, he gets a 10% commission. And so on.
But don't forget to apply the carrot as well as the stick. Continuing with the above example, you might give a salesperson who sold 120 widgets a 30% commission rate. A sales rep who sold 150 widgets might get a 40% commission rate, etc.
If your sales team has different quotas for multiple products or services, commissions structures can get more complicated - but the essential program should stay the same. If the sales team's quota is selling 75 of widget A and 25 of widget B, then structure the commissions accordingly.
When the company launches a new product and wants salespeople to really push that product, you might offer a "bonus" commission that has higher payouts for selling that particular product.
The “floating” commission plan directly ties compensation to performance. What's more, it does so in a way that makes fiscal sense for the company as well as the salesperson.
After all, a sales rep who sold 150% of the quota made the company a lot more money than one who only sold 50% of the quota, so the former salesperson deserves a higher percentage of the profits than the latter.
Note that this compensation plan doesn't have to be pegged to the number of sales. You could alternatively tie it to revenue goals – e.g. the goal might be to sell $100,000 worth of widgets a month. This allows you to align compensation even more tightly to how much money your salespeople are generating for the company.
The other significant benefit to the floating compensation plan is that your superstar salespeople will see that they are getting super-sized commissions, and they'll appreciate it! You are much more likely to hold onto these top performers if you express your appreciation by handing over extra cash every month. And the salespeople who just can't make their quotas will also be motivated to do something about it.
This compensation strategy works best as a motivator if salespeople receive their bonus commissions quickly. The more closely you tie rewards to actions, the more satisfying it is to your salespeople – both consciously and unconsciously. So monthly or even weekly commissions payouts would be more effective psychologically than quarterly or annual timetables.