Is your sales commission structure effective enough to keep your best sales reps on board?
The stakes have never been higher for companies to create sales commission plans that truly inspire.
For many, the path to a solid sales compensation plan is lined with challenges.
From adjusting for market changes and sales cycles to ensuring fairness and staying competitive—the task of designing a rep’s commission plan can be a minefield.
The repercussions of a poorly constructed sales comp plan can be drastic, given how:
- 90% of sellers feel burnout, according to a Gartner survey
- 64% of sales professionals would leave for a similar role with better pay
In other words, a well-designed commission plan could be the difference between retaining your team’s top performers or seeing them walk away. It has the potential to drive teams to push their limits.
What is a sales compensation plan, and why does it matter?
Sales compensation refers to the structured monetary rewards a team member earns—often as a blend of income and performance-based commissions or bonuses—throughout their time with the company.
Designed to inspire performance, a well-structured sales compensation plan encourages employees to meet goals that drive significant business growth.
The goal is to consider sales reps not just as revenue drivers but as profit centers in their territories, with each rep acting as both sales and profit producer.
👉 Case in point: Despite marketplace pressures and productivity concerns, 79% of sales teams have pushed through challenges and increased revenue over the past year.
Protecting and motivating your sales force with the right comp plan is essential. Having said that, building a commission plan can be daunting—with challenges ranging from balancing goals to tracking performance and ensuring transparency. We will look at how you can tide over these challenges and design a winning sales compensation plan.
Potential challenges in designing sales compensation plans and how to overcome them
Designing and managing compensation plans presents several challenges that can hinder the effectiveness of a sales organization.
Consider a scenario where James, a sales manager at a SaaS startup, discovers that his reps are more focused on closing deals that are of low Annual Contract Value (ACV) rather than pursuing high-margin opportunities that demand longer sales cycles. Adjusting the comp plan to reward larger account closures will be ideal, as it will encourage sales reps to go after high-margin sales that maximize value.
Addressing these issues proactively with the right comp plan is essential for building a salesforce that excels and eventually becomes the backbone of your business strategy.
⚡ Pro Tip: You can ease the burden of designing comp plans and managing commissions with dedicated sales compensation software like Everstage.
Let's now go through the common challenges in managing compensation plans, the consequences of ignoring these issues, and practical strategies for addressing them.
1. Misalignment with business goals
Sales compensation plans often fall short of aligning with changing business objectives. This misalignment can lead salespeople to prioritize activities that do not support the company’s strategic direction.
What happens when left unchecked?
Salespeople may become disengaged as their efforts do not contribute to the company’s goals. Time and effort spent pursuing the wrong activities can result in lost opportunities and inefficiencies within the sales process.
How to overcome this?
- Assess compensation plans against Key Performance Indicators (KPIs) to help identify areas where adjustments are necessary.
- Modify commission rates and structures to reflect new product priorities, market expansion initiatives, and customer retention targets.
- Communicate business objectives clearly to the sales team. Regular meetings and updates can highlight how individual efforts contribute to overall company goals.
2. Resistance to change
When implementing new compensation plans or modifying existing ones, sales teams often resist due to concerns about income stability and potential earnings. This resistance can hinder the adoption of necessary changes and negatively impact sales performance.
What happens when left unchecked?
If resistance is not addressed, it can lead to low morale among sales reps. Disengaged team members may withdraw from the sales process, resulting in lost opportunities and stagnation in achieving sales goals.
How to overcome this?
- Implement a comprehensive change management strategy. This includes the early involvement of key stakeholders, clear communication about the reasons for changes, and transparent demonstrations of the earning potential under new plans.
- Provide tools like earning calculators, transition period guarantees, and success stories to help build confidence in new compensation structures.
- Share consistent updates to showcase how these changes contribute to broader goals.
3. Complex implementation
Implementing new compensation plans—including setting up system updates, establishing calculation methods, and managing payment processing—can bring operational challenges. For example, transitioning from a simple base salary plus commission model to a tiered commission structure can be complicated, requiring meticulous adjustments to the entire compensation structure.
What happens when left unchecked?
Without efficient implementation, miscalculations in payouts or delays can frustrate sales reps—lowering morale and potentially impacting sales performance. Operational inefficiencies can also drain resources, limiting the sales team's capacity to focus on achieving business goals.
How to overcome this?
- Invest in reliable sales commission software, document all processes clearly, and train both sales managers and representatives thoroughly.
- Establish a dedicated support team for troubleshooting, maintain detailed process maps, and create clear escalation procedures.
4. Budget constraints
Balancing competitive pay with budget limits is challenging, especially in fast-growing companies. If compensation costs soar without increasing profit margins, the overall budget for incentives and bonuses may tighten, impacting the company’s ability to attract top performers.
What happens when left unchecked?
If budget constraints limit the ability to offer attractive compensation, sales reps may feel underpaid or underappreciated, reducing motivation. This can lead to higher turnover—impacting total sales and overall company goals.
How to overcome this?
- Consider tiered commission structures aligned with profitability goals. Use accelerators strategically to incentivize high performance within budget.
- Benchmark compensation to maintain competitiveness while controlling costs, and consider self-funding models that tie compensation increases to productivity gains and support long-term growth.
5. Performance measurement
Tracking sales performance across multiple channels, product lines, and team roles can be complex. Without clear metrics, it can be challenging to determine accurate commission calculations—further impacting payout accuracy and fairness.
What happens when left unchecked?
Inconsistent performance tracking can lead to disputes and erode trust among team members. Sales reps may lose confidence in the system, decreasing their motivation to hit sales quotas, which can impact bottom-line results.
How to overcome this?
- Define metrics for each role, leverage CRM systems for accurate data capture, and establish clear rules for sales attribution.
- Audit performance data, set up clear dispute resolution processes, and maintain frequent reporting to build trust in the compensation plan and promote fair assessments.
- Utilize feedback loops to gather insights from sales reps about the compensation plan and its impact on their performance.
6. Plan communication
A successful compensation plan requires that all stakeholders clearly understand sales commission structures, calculation methods, and payout terms.
What happens when left unchecked?
Lack of clear communication can lead to misunderstandings in performance expectations and mistrust in the compensation structure, hindering sales performance.
For instance, without a clear breakdown of the new 12% commission rate, the sales team at a fast-growing electronics retailer assumed it applied equally across all products. This misunderstanding shifted their focus away from high-margin items, ultimately impacting profitability.
How to overcome this?
- Develop a comprehensive playbook, provide video training, and ensure regular updates across communication channels.
- Keep a central repository for documentation, conduct regular Q&A sessions, and offer one-on-one coaching to address any misunderstandings.
7. Maintaining motivation
Keeping sales teams motivated year-round, especially during slow periods, is crucial. Carefully curated incentive plans are essential for sustaining sales team drive in off-peak periods.
What happens when left unchecked?
Motivation dips can lead to decreased productivity, impacting both sales volume and market share. A disengaged sales force can weaken the overall organization.
How to overcome this?
- Implement a mix of short- and long-term incentives, with special bonus programs for specific objectives.
- Recognize team members regularly and explore non-monetary rewards like career development opportunities.
- Create a points-based reward system that allows sales team members to earn points for achieving various milestones, which can be redeemed for prizes or experiences.
8. Market changes
External factors like industry shifts or competitive pressures can quickly impact compensation plans. Without flexibility in the sales commission structure, compensation plans may become misaligned with evolving business goals, affecting sales effectiveness.
What happens when left unchecked?
If compensation doesn’t adjust to market conditions, the sales team may miss out on opportunities or struggle to meet performance benchmarks. This misalignment can hinder the organization’s ability to stay competitive.
How to overcome this?
- Build flexibility into the comp plan, with clauses allowing market adjustments.
- Conduct regular market surveys and plan reviews, establishing procedures for quick adjustments when necessary.
Top 10 best practices for sales compensation
Commissions are the most underutilized revenue lever. That said, higher commission rates are not good enough to get your sales force to close deals.
Here are 10 best practices that will help you design a competitive sales compensation plan.
1. Establish strategic pay mix ratios
A balanced pay mix ratio supports sales success by aligning base salary and commission with role-specific demands. This approach tailors compensation to fit the requirements of each sales position, ensuring that sales representatives have both the security of base pay and the motivation of performance-driven incentives.
How will this help?
With the right pay mix ratio, sales teams stay focused on meeting targeted sales goals, encouraging engagement across various sales cycles and tasks. Adjusting base and commission portions makes it easier to drive performance, retain top performers, and align with company goals—ensuring a productive and motivated sales force.
Take, for example, the enterprise sales role: A SaaS company targeting large clients can allocate 40% of compensation as a base salary, with 60% in variable pay.
This allows the rep to focus on building long-term relationships and securing deals without immediate payout concerns.
Similarly, inside sales reps, who handle shorter sales cycles, benefit from a 60:40 split to maintain stability and encourage quick deal closures.
Take a look at the variable compensation percentages typically assigned across different sales roles.
2. Design fair and attainable quotas
Designing fair and attainable quotas is crucial for motivating the sales team and driving overall sales performance. Quotas should be tailored to reflect the specific dynamics of each sales role—taking into account market conditions, product demand, territory potential, seasonal variations, and historical performance. This helps sales reps understand their targets and how they contribute to business goals.
Implementing transparent quota relief policies alongside territory-specific adjustments is vital for maintaining fairness and motivation within the sales force. This strategy will also allow for regular territory balancing and, in turn, promote an equitable distribution of opportunities.
For example, a CRM company might use a tiered quota system with annual and quarterly assessments. By aligning quotas with regional potential, the company’s sales team could reach a 60–70% completion rate with less than 20% variance between different territories.
How will this help?
Clear quotas aligned with role expectations enable sales reps to set realistic goals—resulting in higher productivity and consistent sales outcomes.
💡Pro tip: Monthly performance tracking and quarterly achievement analysis backed by ongoing market conditions assessments will be key to tracking progress and making small adjustments to quotas, keeping them challenging yet attainable.
3. Create uncapped sales commission structures
Uncapped commission structures motivate top performers by offering unlimited earning potential, attracting competitive talent, and driving sales growth. This model removes any upper limit on commission, encouraging sales reps to achieve their full potential and meet ambitious sales goals.
An uncapped plan requires carefully structured accelerators and clear thresholds to reward overachievement. Progressive commission rates and performance multipliers can incentivize continuous performance and larger deals. To maintain balance, sales organizations should conduct regular performance reviews, track profitability, and adjust for market shifts.
How will this help?
Uncapped structures foster a ‘no-limit’ mindset, motivating sales professionals to maximize their contributions and lift total sales.
To make uncapped structures sustainable, communicate commission calculations and provide regular earnings updates. Showcasing team success stories fosters a culture of high achievement and ambition, supporting long-term retention and bottom-line growth.
4. Align compensation with business objectives
Aligning compensation with company goals keeps the sales team focused on key priorities, like revenue growth and customer retention.
Compensation should reflect goals across various areas, such as—revenue, customer success, and market development. This includes targets for growth, market share, product mix, and balancing new business with retention.
Let’s say a telecom company offers a ‘new markets’ bonus to encourage sales reps to target underserved regions and increase market share. The compensation plan might combine a base salary with variable incentives focused on specific territory goals, helping achieve company objectives.
Customer success goals can involve satisfaction scores, retention rates, and product adoption, while market development could focus on new market entry and partnerships.
This Reddit user advocates for a substantial commission for new accounts, recommending a gradual decrease over time to promote sustained growth.
How will this help?
Tying compensation directly to business goals helps drive sales efforts toward priority outcomes.
A successful implementation framework includes clear, measurable targets and regular progress reviews. Sales teams need performance-tracking systems that monitor key metrics, report on progress, and highlight top performers. The framework should also allow flexibility to adjust compensation as business priorities evolve.
5. Implement role-specific incentives
Role-specific incentives recognize the unique goals and tasks across different sales roles, motivating consistent performance and a clear focus on role-driven milestones.
Let’s take a quick look at the incentive type that is ideal for these different sales roles.
How will this help?
Tailoring sales incentives to specific roles drives focus on each role's objectives, rewarding distinct contributions to the sales process and overall goals.
As roles evolve, adjust incentives to match changing responsibilities and recognize team contributions effectively.
6. Benchmark against market standards
Benchmarking compensation plans regularly against industry standards is crucial for staying competitive and attracting top sales talent.
Here’s how to go about it:
- Gather insights from industry reports, surveys, and peer networks to compare base salary ranges, commission rates, and incentives.
- Use this data to identify trends in the sales incentive structure and understand regional differences in pay scales for various sales roles.
- By aligning compensation structures with the market, businesses can retain their top performers and appeal to new hires.
How will this help?
A structured benchmarking approach keeps your sales compensation plan competitive and aligned with market expectations. Using multiple sources like professional networks, recruitment data, and compensation reports provides a clear view of salary trends, sales targets, and performance metrics.
7. Reward desired sales behaviors
Behavior-based incentives guide sales reps toward actions that benefit long-term goals, like customer satisfaction, solution-driven approaches, and team collaboration. This type of incentive can include client feedback recognition, collaboration incentives, and acknowledgment of innovative solutions that meet the needs of existing and new customers.
How will this help?
Behavioral rewards build a culture of customer-focused actions and problem-solving, helping to improve client satisfaction and drive retention.
In addition to higher commission rates, sales teams can offer non-monetary rewards, like a “Salesperson of the Month” program, to encourage these positive behaviors.
It’s also recommended to:
- Design incentives around solution-focused selling and thorough customer-need analysis.
- Use non-monetary rewards, such as monthly or quarterly recognitions, to reinforce positive actions.
- Recognize achievements like high satisfaction scores, successful reference generation, and effective issue resolution.
8. Maintain clear commission policies
Transparent sales commission policies are vital to a successful sales compensation structure. Clear, documented policies covering commission percentages, calculations, accelerators, bonuses, and payment terms help sales reps understand their earning potential. Include specifics on split deals, payout timelines, and criteria for special cases like team sales and channel partner sales to avoid confusion.
How will this help?
With transparent policies, sales reps can see exactly how their work impacts their earnings, promoting confidence and reducing misunderstandings. This clarity helps build trust within the sales team and aligns their efforts with business goals.
✔️ Pro tip: Develop a comprehensive policy guide that includes FAQs, calculation examples, process flows, and real-world examples to clarify key points. Make this guide easily accessible and hold regular Q&A sessions to address any questions.
9. Keep the structure simple and transparent
A simple and transparent compensation structure is key to effective sales management. This design focuses on clear metrics and straightforward calculations, making it easy for sales reps to understand and track their performance.
Incorporating tools like performance dashboards and commission calculators allows sales reps to monitor their progress and earnings independently.
A Reddit user suggested a simple commission plan for startups, which is—10% of the first-year contract value.
How will this help?
A transparent structure allows sales reps to easily track their earnings potential and understand how their actions impact compensation. For instance, providing a dashboard to visualize progress against quotas can clarify expectations. Additionally, offering a commission calculator promotes accountability and motivation by allowing salespeople to assess their performance against the sales incentives plan.
Investing in comprehensive training materials ensures that all stakeholders are equipped to work effectively with the compensation structure. Additionally, regular reporting and open communication will foster an environment where sales teams feel informed and engaged.
10. Implement regular reviews and updates
Regular reviews and updates are essential for keeping compensation plans competitive and aligned with market trends. This process involves annual strategic reviews, quarterly assessments, and monthly monitoring to evaluate performance metrics and achievement rates.
This also allows for timely adjustments based on changing circumstances. By focusing on plan effectiveness, cost-effectiveness, and behavior alignment—organizations can ensure their compensation structures support business goals.
The update process should include systematic reviews followed by careful adjustments to the compensation plan. Comprehensive communication and training efforts are also crucial to support these changes.
How will this help?
Frequent reviews maintain the relevance of compensation plans. Analyzing sales performance data can highlight necessary adjustments to commission percentages, or at times, even the base salaries.
Key areas to assess during reviews:
- Evaluate achievement rates against quotas and sales goals
- Analyze the current compensation structure's success in driving desired sales behaviors
- Ensure compensation plans remain attractive relative to industry standards
- Assess the total cost of the compensation plan against sales and profit margins
Incentives that inspire: Revamp your sales compensation plan today!
Creating a compelling sales compensation plan is essential for offering your sales reps ample earning opportunities while meeting your company goals. These 10 best practices will guide you in designing a compensation plan from scratch or even help you assess your existing plan for any loopholes.
Forrester estimates that payees spend an average of two hours each month shadow accounting their commissions. With Everstage, you can eliminate this wasted time through real-time visibility and transparency, significantly boosting productivity. Automate approval workflows and contract management while ensuring payments are processed and finalized—keeping your incentive program on track. Take it a step further with gamification features that motivate your sales reps to excel.
Ready to give Everstage a try? Calculate your ROI and discover how much you can save with Everstage.
