Understanding How Much You Can Pay a Salesperson
A fair and motivating sales compensation plan pushes your team to excellence and creates loyalty among your employees. However, with so many moving parts, winery and specialty food businesses can face challenges in executing sales compensation well. This brief guide demystifies salesperson pay and provides insight into structuring winning compensation plans.
The Basics of Sales Compensation
Pay for sales reps is often more complex than other compensation structures, with multiple components adding up to a total salary. Every component in your compensation plan is important in ensuring your people feel valued and providing incentives for them to perform. After all, if your sales team doesn't do good work, your business can't grow.
What Are the Components of a Compensation Plan?
Some common components of sales compensation plans include:
Base salary. This is how much a salesperson earns for showing up each day and putting in the work, regardless of whether they close a deal.
Commissions. Commission is how much a salesperson earns on each sale. It can be structured as a percentage of sales or profits or as a flat rate per product.
Bonuses. Bonuses refer to compensation tied to specific results. You might offer bonuses if an entire team makes a goal or for individual reps.
Sales incentives. Sales incentives refer to additional compensation that isn't included in the above categories. These might be short-term perks, such as a sales incentive of double commission on a specific product to help move inventory you're long on.
Benefits and perks. This category of compensation refers to things like health insurance, paid time off, flexible scheduling and reimbursement for education expenses. Some items in this category may not be tangible or related to a specific dollar figure.
Other concepts that might be considered in laying out your sales compensation plan include on-target earnings, accelerators and decelerators, and clawbacks. On-target earnings are bonuses paid out when a salesperson meets a certain quota. For instance, you might set a stretch goal and double commissions for any sales beyond that point each month.
Accelerators and decelerators are calculations programmed into your compensation plan that increase or decrease how much someone earns based on sales. You can use these to manage pay caps or increase commissions for certain seasons. Clawbacks refer to the method of taking back commissions for canceled or returned products.
Determining What to Pay Your Sales Team
Once you decide what components to include in your sales compensation plan, you need to determine how much to pay your team. Consider the factors below as you apply dollar amounts to your plan.
Market Rates for Compensation
Do some research to find out how much sales professionals are earning in similar positions in the industry. While you must consider your business's bottom line, you also need to pay your team enough, or they'll leave for the competition. Remember to vet market rates for specific positions—a sales rep and sales manager, for example, likely make different salaries.
If you want help understanding compensation needs within your industry, check out our our human resources services.
Expected Sales Revenue
Consider your sales revenue forecast. You can pay more when you make more, and there is value in sharing growth with your sales team.
Profit Margins on Various Products
Profits are important, too, especially when it comes to sales commissions. If the profit margin on a specific product line is only 10%, for example, you probably don't want to pay a commission of 15% on those sales. Depending on your compensation structure, you may want to create differing commission rates for products within each profit margin range.
For example:
Products with a profit margin of 20% or less pay a 3% commission
Products with a profit margin of 21% to 50% pay a 5% commission
Products with a profit margin of 51% or higher pay a 10% commission
Big-Picture Business Goals and Financials
You should also consider the overall financial health and big-picture goals for your business. A winery startup might pay more in sales commission than its expected initial revenue to help drive early growth, for instance. Or you might take a bigger hit than normal on profit margins by paying bonus rates on commissions when you're launching a new product.
Implementing Compensation Strategies
You must put your sales compensation plan through your financial model to ensure you can afford to pay salespeople as your plan outlines. Skipping this step can leave you scrambling on payday, and that's not a good look for any business. Discover how Balanced Business Group's finance services can help with these types of strategies and modeling.
Tips for Successfully Implementing a New Compensation Plan
In addition to conducting due diligence when it comes to affording your sales compensation plan, here are a few other tips to support success when implementing a new plan for paying sales reps:
Get feedback from sales professionals. When possible, ask salespeople what they like about your existing plan and how it might be improved. Get feedback about what type of pay structure works best for your team and makes them feel valued.
Put everything in writing. Write out your plan and ensure it's clear and easy to understand. Always share the compensation plan with your team so they know exactly how they are paid.
Be as transparent as possible. Create options for salespeople to check their ongoing earnings so they have an idea of what to expect each payday. Additionally, be transparent about pricing, costs and sales compensation. This fosters trust and loyalty with your team and helps build a strong foundation for a successful business.
Ensuring Your Compensation Plan Works
Avoid rushing a compensation plan. Take time to review all the details and pass your ideas by sales leadership, accounting and other subject-matter experts to ensure you're not missing important details. Balanced Business Group can help you set up a compensation plan that works for your winery or other business. Reach out today to connect with our consultants for more information.
