Sales Compensation Plans Examples: Models to Motivate Your Sales Team

After building a stellar sales team, the next critical step is motivating them to sell. As any sales leader knows, effective sales compensation plans are the key. The right plan rewards sales agents to exceed their targets, boosting the company’s bottom line. Using the wrong plan will let everyone wonder why deals are slipping through the cracks and revenue is down.

Crafting perfect sales compensation plans is an art form. Sales leaders must find the right balance of salary, commissions, bonuses, and perks to keep their sales team engaged. Should the company pay higher commissions or offer bigger bonuses for overachievers? Should they reward individuals, teams, or both? How often must the payout be? These are the questions that keep sales leaders up at night.

Sales Compensation Plans Examples

There are several compensation plans that sales leaders can choose from. They need to find the best one the suits the needs of their sales team. The types of sales compensation plans are as follows:

Straight Salary Plan

A straight salary plan is the simplest among the sales compensation plans examples. With this plan, employees receive a consistent wage. This does not depend on their sales performance or the revenue they generate. This type of plan provides a steady and stable income. But it can reduce motivation and incentive since sales leaders do not link pay with performance.

This type is one of the best sales compensation plans for employees in training or sales support roles. It ensures new hires learn the ropes and gain experience before worrying about meeting quotas or earning commissions. This best suit sales support roles since it offers a steady salary which is fair. Their job focuses on assisting account executives and closing deals rather than directly selling.

Commission-Only Plan

Commission-only plan is among the simplest types of sales compensation plans. The sales agents earn a percentage of the sales revenue they generate. They receive commissions for each sale they successfully close. The percentage ranges from 5-20% depending on the industry, product margins, and experience of the sales agent.

Base Salary Plus Commission Plan

Sales compensation plans of this design allow the sales team to receive a fixed base pay each month, plus commission on top for hitting sales targets. This provides stability with the chance for higher earnings through commission. Companies set a reasonable base salary to cover the basics. On top of that, they offer commission rates for exceeding goals. This incentivizes the team to push for maximum sales each month.

Tiered Commission Plan

Companies looking for more complex sales compensation plans and commission structure can follow the tiered commission plan. This model sets specific sales targets that sales agents need to hit to earn increasing commission rates.

For instance, sales agents earn 5% commission on their first $100K in sales, 7% on $100-200K, and 10% on everything above $200K. This encourages them to push themselves to reach higher goals to maximize their earnings. It rewards top performers who consistently reach their targets as well.

Profit Margin Plan

The profit margin plan rewards the sales team based on the profit margins they generate. Rather than focusing on revenue alone, sales compensation plans like this motivate sales agents to sell high-margin products and services.

When crafted well, profit margin sales compensation plans are an excellent way to motivate the sales team to boost the bottom line. Sales agents earn more when the company earns more, creating shared success. But it may lead sales agents to avoid lower-margin opportunities. Sales leaders then need to provide proper guidance and oversight.

Territory Volume Plan

The territory volume sales compensation plans reward sales agents based on the total revenue or units sold in their assigned geographic territory or customer base. It is a simple model that motivates sales agents to maximize sales in their patch. Companies set a revenue target for each territory and provide incentives for sales agents who reach or exceed it.

Residual Commission Plan

With a residual commission plan, sales agents earn a percentage of future sales from accounts they have already closed. Sales compensation plans like this encourage them to not just land new customers but cultivate long-term relationships as well to generate repeat business.

Once a sales agent makes an initial sale, they receive a percentage of revenue from that customer for future purchases. The commission percentage is often lower than for new sales, ranging from 3-10%. Sales agents get commissions if the customer remains active. Because of this, sales agents must provide great service and upsell accounts to increase lifetime value.

For the company, residual commission sales compensation plans are an investment in loyalty and longevity. Companies reward sales agents with sustainable, high-value relationships, not just the quick win. It may cost more upfront but will pay off through greater customer retention and lifetime revenue.

Draw Against Commission Plan

The draw against commission sales compensation plans are hybrid models where sales agents receive a guaranteed minimum base salary along with commissions. The base pay provides stability, while commissions motivate sales agents to exceed sales targets.

Bonus Plan

A bonus plan rewards top salespeople for exceeding targets. Sales compensation plans such as this offer uncapped bonuses that motivate sales agents to push beyond their quotas.

Non-Cash Rewards

Non-cash rewards are a great way to motivate the sales team without impacting on the company’s budget. Offering prizes and perks, no matter how small, shows the team that the company appreciates their effort. Some easy options include:

• Extra paid time off
• Gift cards to their favorite stores or for meals
• Tickets to movies or events
• Spot bonuses for closing a big deal

Recognizing and rewarding hard work keeps the sales team engaged and boosts morale. Even small gestures go a long way in making them feel valued.

Those are a few of the most common and effective sales compensation plans that companies currently use to motivate sales teams. By choosing a model that aligns with key business goals and company culture, sales leaders put the sales agents in the best position to thrive. When the sales team is thriving, the company's bottom line benefits.

The time the business invests in developing solid sales compensation plans will pay off through increased productivity, higher employee satisfaction, and more sales. Companies must keep experimenting to find what works for their unique situation. With the right plan in place, they can keep the sales team motivated to achieve the highest levels.