Why Is Developing Sales Compensation Plans So Challenging?

April 01, 2018

Over the years I have done quite a bit of sales compensation consulting. My experiences have caused me to conclude that sales compensation is a challenging topic because people often think in terms of absolutes. Most of the questions I received began with, “What is the standard (salary, draw, commission percentage) for (an industry, product or service, geography)?”

Unfortunately there are very few “standards” that apply to sales compensation. The variations in sales compensation plans are infinite and the published research that provides compensation details (salary or draw + commissions + bonuses + other incentives) by industry or geography is quite expensive. This makes sense when you think about it - if a company has managed to develop an effective sales compensation plan, what incentive do they have to share it with others?

Here is the best advice I can give you to help you develop an effective sales compensation plan - pay less attention to what other companies are paying and more attention to developing a sales compensation plan that:

  • Takes into account the profitability of your company’s various products and services, and

  • Motivates specific, desired sales behaviors

These are the twin cores of any truly effective sales compensation plan!

With that said, there are some basic concepts that will help you develop an effective sales compensation plan. In future blog posts we will examine the following:

  • Why 100% commission plans usually don't work

  • Should you pay a salary or a draw?

  • Should you calculate commissions on revenue or gross margin?

  • Do sales incentives really motivate salespeople?

  • What return should you expect on your sales compensation investment?

  • A 9-step process for developing an effective sales compensation plan

  • How much should you pay for referral fees?