Sales Leaders and Sales Managers often question if their sales compensation plan is paying out too much or too little. We receive questions such as “Is our sales compensation plan too generous”?, and “Can we afford our sales compensation plan”?
Here are seven steps that will lead to affordable and competitive sales compensation plans:
1) Determine your average gross margin.
2) Determine total compensation budget as a percentage of margin.
3) Determine on-target (total) earnings budget for this sales position.
4) Determine quota.
5) Select the percent of compensation to be paid in the form of base salary.
6) Select the percent of compensation to be paid in the form of variable compensation.
7) Determine variable compensation composition.
For example, this is a typical technology sales (Software, Managed Services, Platform) model:
Here are some average variable compensation percentages as a percentage of total compensation for different industries:
- Software sales: 40% to 50%
- Pharmaceutical sales: 25% to 35%
- Insurance sales: 30% to 45%
- Healthcare sale (excludes technology platforms): 20% to 35%
- Financial services sales (excludes FinTech): 20% to 40%
- Manufacturing sales: 15% to 30%
Determining the criteria on which bonuses are earned requires careful thought and planning. Typically, a careful balance of positive and negative consequences are utilized to affect specific behaviors. Payout of commission on bookings should also be deployed with purpose.
On-target-earning (OTE) calculations are built on the assumption that the right sales people have been hired; and these sales people have specific traits which align with the characteristics of your specific type of sale. Ultimately, when hiring sales people you want to hire the right fit and with lower overall cost. Companies have turned to Treeline for 24 years for sales hiring, and to find the right fit faster with less overall cost.
Treeline fractional CROs can also assist you in creating sales talent models, and highly effective sales compensation plans that align with your business objectives and goals, and that move the needle! By leveraging Treeline’s sales consulting services, companies gain access to industry-leading sales expertise that can drive success.
For more about Treeline CRO services, please visit https://www.treelineinc.com/sales-recruiting/fractional-cro-service
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