A sales compensation and commission structure is the ‘carrot’ for sales reps, that defines how, why, when, and how much money they will make for specific behaviors.
Compensation, commission, and incentives are too often used interchangeably, when they are not interchangeable. Each plays an important role when used strategically by leadership to drive certain behaviors by the reps. These programs should be thought out in detail about how to drive short, mid, and long term value for the company and compensation the reps accordingly for the value they have created.
There are many ways to build out your sales commission structure and it should be determined by your phase of growth, team skills, and a careful examination of your short, medium, and long term goals. The standard sales commission structures typically include revenue, gross margin, and tiered commission structures, along with multiplier and commission-only plans. The sales commission strategy is effective for individual performers because it provides employees with the opportunity to obtain additional compensation that rewards their efforts, and especially, their achievements.
Employers must design an effective and comprehensive, but not overly complicated, sales compensation plan that rewards the behaviors that the organization needs to promote.