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Over the past few months, I've talked to many sales leaders and business owners about compensation for their sales teams and one main finding has emerged: the pandemic has revealed the gaps and flaws in the compensation structure for salespeople in B2B.
The drastic changes in market conditions have shown that many SMBs base part of their sales force compensation on factors that are not related to performance, but rather to activities. These activities often have no correlation with performance and results.
This is a major issue that highlights the complexity of creating a compensation plan for sales teams and salespeople.
Here are 7 critical tips to rethink the salary and commission structure for your B2B sales team.
1. Satisfy the entire sales team
You need to develop a compensation plan that is flexible enough to ensure that all salespeople, without any exception, are satisfied with their compensation. Satisfaction in this case can mean several things:
- Enabling the representatives to earn income to cover their needs
- Feeling the plan is fair to everyone
- Knowing that the compensation is aligned with efforts
You need to make sure this is the case, because dissatisfaction with just one team member can have significant consequences:
- Decreasing motivation of the dissatisfied salesperson
- Drop in the level of commitment
- Decline in sales results
- Negative discourse with other team members
- Contagious and generalized dissatisfaction
2. Offer uncapped compensation
Who should be the highest paid person in the company? The CEO? Top executives? Well, in some cases, it can be a sales representative, and that’s OK.
Of course, this does not mean increasing the fixed salary, but rather rewarding all sales made by the representatives in the form of commissions. This is a very powerful form of incentive to encourage salespeople to go after all the sales they can.
In short, well-designed compensation structure should not have an upper limit. Period.
3. Consider sales representative profiles in the mix: intrapreneurs vs. entrepreneurs
There are different basic types of salespeople: on one hand you have the “entrepreneur” mindset. These sales representatives are willing to assume all the risks but also the rewards of their work.
On the other hand, those who are looking for more security and are therefore willing to have less gain in return are more “intrapreneurs”.
The latter profile is willing to have a higher salary and less commission for overall lower compensation for the same revenue generated, compared to the salesperson who will have a plan with less fixed salary, but more commission. What’s the main difference? The reps with a lower fixed salary takes more financial risk on his shoulder, therefore, the reward is greater with a higher commission percentage.
Regardless of the profile, this is not a negative. It is simply one of the factors to consider when building your compensation structure. In any team, it is very likely to end up with both profiles and neither should be overlooked.
4. Include a variable compensation portion of at least 20%
In a sales position, compensation should systematically include a variable portion that varies between 20% and 100% of the total compensation.
This variable portion functions as an incentive, even for individuals who are primarily intrinsically motivated.
The percentage of variable compensation is adjusted according to several criteria such as:
- The maturity of the products sold
- The length of the sales cycle
- The market
- The salesperson's preferences for the fixed portion of the salary
5. Offer options to choose from
Each salesperson should be offered control over their compensation plan through various options.
Schematically, we can think of the options as follows:
- 80% fixed and 20% variable
- 50% fixed and 50% variable
- 0% fixed and 100% variable
If giving a choice is a must for an effective sales compensation plan, it also comes with a set of rules. The most important one is that the seller who chooses an option must keep it for the whole year and eventually, he can change it the following year.
The second rule is related to the notion of risk: the salesperson who takes the plan with the lowest variable portion takes less risk and should therefore be paid less than the salesperson who takes the 3rd option and takes all the risk.
6. Compensate during onboarding
For newly hired reps, you need to offer a fixed compensation that allows them to build their pipeline, set up their sales recipe, and integrate into the market. During this period, compensation ensures that you don't burn through the onboarding process and neither do the reps.
This compensation should be offered during the period of reaching full performance which will depend on the length of your sales cycle.
7. Retain the best salespeople
When compensation is heavily commission-based, top salespeople stay with companies longer because they have a high degree of control over their overall income. In your compensation plan options, always include a scenario for A players who will have better longevity if they can actually see their efforts rewarded with high commissions.
When developing your compensation plan, never underestimate how much it can cost your company to lose your best player(s).
Compensation is an essential part of a well-functioning sales department. The right plan retains the best salespeople, ensures the company doesn't leave money on the table because of a plan based on poor metrics and attracts new talent.