Are you in the sales business? Do you plan to pay your employees commission? Is one commission plan better than another? These are all good questions and finding the right commission plan is essential in keeping your employees happy and long-term.
Commission pay plans are usually based on two factors, employee performance, and a percentage of what they have sold. It is possible to over-reward and pay out a percentage that is too high so what are the best commission pay plans?
When developing a commission-based pay plan, think of these factors:
- It should be simple - If your commission plan has so many tiers to achieve and wording your sales team doesn't understand, it's useless to the employee.
- Goals - Are the goals you set unreachable? If they are, re-look at these goals.
- Focus with teams - Decide if team focus is better than individual. This doesn't work for all commission-based pay plans, but works well in a tight sales competitive businesses like car sales.
- It should be flexible - Never try and keep the same plan year after year, or even month after month. If sales people or teams are achieving goals time after time, they are making your business money so you can change the commission pay plan to reflect that.
Now that you know what key items should be part of your commission pay plan, which plan is best?
Commission pay plans are usually structured in one of the following ways:
- Low Commission and High Salary - This type of commission plan is effective for in-house sale personnel, or people who make cold contacts. Offering a higher salary so they can actually make a living and a low commission on cold calls that turn into sales is often preferable for cold-calling in-house sales.
- Sales by Individuals - Simply put, sales people who sell from walk-ins at the company, pull in customers and focus on the sale itself should be paid a percentage of each sale.
- Territorial Sales - If you have a company that sends your sales people to assigned territories, base your commission plan on volume in each territory. If you try this, make sure you understand who your customers are and don't send your sales team to areas where competitors rule.
- Sharing in the Profits - This type of commission pay plan works well with sales managers. Skip individual sales commissions and pay them on the bottom line profits each month. Effective sales managers will do well with this plan if they are good at motivating and training their sales teams.
- Hitting the Mark - Some commission pay plans are goal oriented. You may decide that if a sales person sells up to five products they get a certain percentage, a higher percentage will apply if ten products are sold. An even higher percentage will be the option if they hit twenty products sold and so on.
As the business owner, you will need to decide which type of pay plan works best for your type of business. Talk to other business owners who pay on commission and ask what types of plans work for them. Ask your sales team for input on what types of plans they think will work best for their lifestyle.
Continue to the next page for more things to consider when determining a commission pay plan.