Let’s begin by defining why we have compensation plans. There are two reasons:
- To pay people fairly for the work that they are doing
- To implement the objectives of the organization
When most of us develop our sales compensation plans, we primarily focus on the first point mentioned above, but do not spend much effort on the second.
We must pay our people fairly for the results they generate. Generally, this is directly related to the revenues and profits they create. If the sales person cannot generate the profits needed to provide a reasonable “Return on Investment” on what you pay them, then the compensation plan is not fair to the employer. If the compensation plan is not competitive for the results the
sales person generates, it is not fair to the sales person. Compensation plans must be a win-win for both the employer and the sales person.
One primary benchmark we use to determine fairness is the one-third/two-thirds rule. When developing your compensation plan, ensure that one-third of every gross profit dollar goes to the sales person (in total compensation – salary, commissions and bonuses) while the other two-thirds goes to the company. There are commission calculators (or you can create one specifically for your compensation plan) that can assist you in analyzing the balance of your plan.
The second reason for compensation plans is often the most overlooked. Most compensation plans seem to have nothing to do with corporate objectives. The unfortunate fact is that most solution providers don’t have written corporate objectives to base their compensation plans around— and that is simply because most of them do not have a business plan.
A properly written business plan will have stated corporate objectives, sales goals and service targets. Once those objectives are defined, compensation plans can be constructed around them. When you follow that process, you enable your sales people and the rest of your employees to help meet each of the business goals you created.
Let your sales people help you meet your objectives!
Larry Schulze is Co-founder and Principal Consultant for the Taylor Business Group. TBG is a Solution Provider centric consulting firm offering direct one-on-one consulting and coaching, workshops and owner and service manager based peer groups (Business Improvement Groups). Larry can be reached at Larry@taylorbusinessgroup.com or at (816) 737-3681.
