I have helped to set and create sales compensation plans for companies that have hundreds of millions of dollars in revenue to ones that have a few thousand in revenue. Though the companies may be different in size and sell different solutions, the fundamentals of a good sales plan are the same.
Keep the following in mind when drafting a sales compensation plan for your sales reps:
Fixed and Variable Compensation
In my opinion, a good sales compensation plan has fixed and variable compensation. I don’t find 100% commission plans to be very good structure. Often it takes some time to make that first sale, which means you are guaranteeing some commission; otherwise the rep gets frustrated and leaves. Often with startups there is the need for the sales resource to help with some typical non-sales related items, for the benefit of the business. The fixed component can help. A recent blog by Steve Gruber highlights some of these examples.
Have a Target on Activities
Before there is revenue there are the activities that lead to revenue. Paying reps on activities focuses them on the things that need to get done before the revenue arrives. My favourite activities to have targets on are qualified meetings, demos, and proposals.
Pay on Revenue
I think revenue is the best target for a sales rep. It is often easier to determine and measure then margin or profit. The higher the revenue the more the rep will make. I also recommend not giving reps ultimate pricing authority. They should be given a range that they can offer. This will keep the margin manageable for the organization.
Make it Simple
Having a less complex compensation plan that focuses on a few variable sales targets is best. This will make it easier to manage and help the sales rep focus on the right targets. The targets should be quantifiable and easy to measure. An example of a simple plan could be 50% salary and 50% variable compensation to a target salary. The variable could have three components with revenue as the largest, qualified meetings/demos, and qualified proposals.
Keep these main points in mind and you should have an effective and simple sales plan. If you have any questions on setting a sales plan for your team I would be happy to provide an answer. Contact me via email or on twitter.