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Sales compensation plans vary widely from organization to organization with plans tailored to meet specific product or market objectives for a particular time period. Almost all sales compensation plans share the following common interests.
- The Company's intent to keep selling costs in line with results
- Controlling and directing sales force activities
- Attracting and retaining high performing sales representatives
- Improving the Company's market position
- Maximizing profitability from sales
In designing a compensation plan for a particular selling situation, companies tend to consider the type or nature of the product or service, the target market segment, the channel of distribution, the phase of a product's life cycle, and, finally but not least, the prominence of the sales representative in the selling process.
Market Factors
Companies and products with low market profiles tend to pay sales reps more because the rep is literally creating the market and is largely responsible for making the sale. Conversely, when a company or a product has a high market profile, the sales rep is somewhat less important in the selling process and will probably be paid less for his or her efforts. Similarly, high margin products, early life cycle products, and intangibles tend to generate better pay for reps than mature, tangible products with lower margins.
Competitive Factors
Market competition also plays a role in the design of sales compensation plans. When there are many competitors in a field and the demand for proven sales reps is high, base pay (salaries and draws) tends to rise along with total earnings opportunities. When competition and labor demand lessen, both base pay and total annual cash opportunities tend to shrink.
Human Capital Factors
Finally, the nature of the sales rep's role will also drive sales compensation plan design. Companies tend to offer higher compensation to the so-called "hunters" than they will to "farmers" or "maintainers." The degree of risk (in achieving success) in searching out and securing new customers warrants higher compensation. Penetrating existing accounts with additional products/services, while valuable, is generally thought to require less sales creativity and therefore does not command the same level of compensation.
In today's complex, multi-faceted business organizations, it is not uncommon to find that a single organization has several different types of selling situations and each is addressed with a customized compensation plan to complement and support the company's need and objectives.
For more information on "How to Design a Sales Compensation Plan That Delivers Results," contact Jim Geier, President and CEO, at 215.244.8110 or info@hccpartners.com.
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