Do's and Dont's of Sales Incentives and Commission
Updated: Mar 31
What are the DO’s and Dont’s of a Sales Commission Plan:
Ø Begin by assessing the program's overall structure, taking into account the overall business, revenue growth, and gross margin targets.
Do: Connect the framework with the company's main drivers. If Product A has the highest profit margin, grant it a higher percentage commission. Similarly, if the aim is to increase Product C revenue, consider giving it a higher commission percentage.
Don't: Depend on an out-of-date, antiquated platform that isn't aligned with key business objectives.
Ø Calculate and reimburse commissions received under the contract on a regular basis.
Do: Make deposits on a regular basis, preferably weekly. Provide the sales team with daily reports and calculations so they know where they stand.
Don't: Build a programme that measures and pays commissions at the end of the year or fails to include daily performance reports.
Ø Each member of the sales team should have a base salary and a target commission amount.
Do: Make the salesperson's fee a large and substantial part of his or her total earnings. A simple rule of thumb is that the commission scheme must provide the salesperson with a minimum of 20% extra compensation (above and beyond base) and enable them to receive a total commission equal to or greater than the base commission.
Don't: Make the amount salespeople will receive so small in relation to their overall salary that it isn't enough to inspire them.
Ø Determine the efficiency metrics that will be used to calculate commissions.
Do: Keep the software clear and easy to follow for the salesperson. In short, a commission programme should be simple enough that the salesperson understands how their daily activities affect their commission.
Don't: Build a model that accurately aligns compensation and company business goals, but does so in such a convoluted way that no one understands it.
Ø Implement the commission structure.
Do not alter the program's configuration after it has been introduced unless it is absolutely necessary.
Don't: Change the implemented model on a regular basis. Firstly, the more often changes are made the more likely the sales team may become perplexed. Secondly, past experience has shown that any alterations may be viewed negatively by the sales force at first. Thus, frequent alterations to commission model tend to have adverse effects on morale and revenue.