Entrepreneurs

How to Determine the Compensation for Your Sales Team

Right now, a lot of business owners are struggling to find and keep good talent, and if you are in the market for a new salesperson, you may be looking for a way to stand out from the competition. One way to do so is to rethink your sales compensation plan to make your business more appealing to prospective job seekers.

As a business coach for more than 25 years, I have helped thousands of business owners grow their businesses and build and grow their sales teams. And during that time, I have seen business owners handle their sales compensation plans really well and I have seen owners offer up really subpar plans that lost them great employees. That said, there’s a simple but effective method to get your sales compensation right the first time.

Determine your rate

Forget the going rate. Forget what you have paid in the past or what your competition might be offering. Instead, ask yourself this one question first:

What size check would you willingly write for the results you are asking them to generate?

In other words: What would you pay for X sales results? Once you know that number, start your compensation plan there. This is the initial “upper limit” you would be willing to offer for a risk-free result. Once you have that figured out, it’s time to ask a few more questions.

  • What type of salesperson are you hiring? 

  • How skilled will he or she need to be? 

  • What kind of sales track record will you be hiring? 

  • What amount will a strong salesperson need to earn to keep him or her “bought in”? Meaning, what number will keep the salesperson pounding the pavement and hitting the phones in order to help you grow your business? If this amount isn’t enough, will they go elsewhere or take on a second job to pay the bills?

  • What value does the marketplace put on this type of salesperson, both inside your industry and outside your industry?

Put together your draft

Once you have a good idea of what you’re looking for compensation-wise, it’s time to create a draft compensation plan. I like to look at it from a few different angles on a spreadsheet. First, the best realistic sales case scenario. This is where the salesperson meets or exceeds your expectations and sales goals. How will the company feel about paying this amount of money for this level of sales results?

Next, you want to look at the worst-case scenario. What is the minimal level of sales results the salesperson will need to produce before you fire them? Is this minimal level of sales results enough to keep your salesperson (at least long enough for them to improve and earn more)? Is the amount of compensation worth the value created by the salesperson for the company?

And, lastly, look at the case of the most realistic sales, which is somewhere between the best- and worst-case scenarios. Does this work for the salesperson? Does this work for the company?

In an ideal world, all of your sales hires will exceed your expectations and bring in more business than you expected. But in reality, you will find both good and bad hires. And some will try to game the system. This is why it’s important to take a moment to think through your sales process and your reporting systems to prevent potential abuse of the system. How could a savvy salesperson game the comp plan? What systems and processes could you put in place to protect all parties from these tempting behaviors?

The opinions expressed here by Inc.com columnists are their own, not those of Inc.com.

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