As you get closer and closer to nailing down a concrete sales commission plan, there are a few technical details you'll want to nail out.
Every plan requires a pay mix -- that is, how you're paying your reps for their work.
While there are many different types of sales commission plans, there are a few uniting features that span across the different types of commission: base pay, target pay, and on-target earnings.
To make this as accurate and attainable as possible, use internal and external data sources to drive insight and forecast a robust, obtainable plan. Aside from the pay mix, make sure you identify an On-Target Earnings (OTE).
OTE is an employee's pay structure made of the most basic salary and variable components, like commission and compensation. This is used to provide real insight into what a sales rep will earn when the established performance targets have been achieved.
What is Pay Mix?
Pay Mix is composed of the ratio between base salary and variable pay -- typically ranges from 60:40 to 70:30, or even 75:25 depending on the industry, product and service, sales rep, and level of complexity in each sale.
Base salary is essential because it shows you, as a sales manager, understand that your sales reps do more than sell.
Their responsibilities also complete administrative and office tasks like entering their sales data, attending trade shows or conference events, and other work that doesn't directly link to a sale. So regardless of how their quarter's work pans out, they're getting a fixed amount of money to make ends meet.
If your reps are spending a significant amount of time entering data into your sales management software, fixing errors, or mitigating data problems with your systems, the base salary should compensate for the time spent away from making sales.
Variable pay is the part of a sales rep's compensation determined by how well they perform. Rather than the fixed base salary, this is a variable portion that depends on how much the sales reps are selling. If your company's product is a $3,000 sale, the average variable payout per sale is around 5%. So, for every widget sold, they'd receive $150.
How to Determine Pay Mix
From Salary-only to Commission-only, there's a wide range of options for setting what your reps will make. When deciding how to structure your commission plan, ask yourself how difficult it is to make a sale, and what levels of work are you and your reps doing together? Are you finding and providing your reps with a list of leads, or are they curating these entirely on their own?
Additionally, consider the sales cycle complexity, how many leads your reps balance at once, and what the industry standards for pay mix are. While the average is usually 60% fixed 40% variable, a less aggressive, a standard pay mix typically consists of 70% fixed and 30% variable.
While this isn't about the different types of commission plans, you can find detailed descriptions of them from Hubspot here.
What to do Next
Pay mix, like compensation, bonuses, and other features of your sales reps compensation, is a crucial part of both rewarding and acknowledging the dedication of your employees. A poorly structured pay mix leads to a poorly motivated team, underperforming reps and missed quotas -- that ultimately steer you away from your company's overarching goals.
While this may seem an overwhelming task, there are plenty of software and platforms that provide the tools to make this simple and easy. Data is the primary driver that will validate and support your decisions.
Performio's Extract, Transform, and Load (ETL) capabilities will allow you to connect your pay and performance data to gain insights into the right pay mix for your business.
Performio is the only enterprise-grade sales performance management software that is easy to use and gets you up and running in weeks. See if automating sales commissions is right for your business by completing our business case template.