What is Sales Compensation Management?
Sales compensation management is the process of designing, implementing, and managing how your organization compensates its employees. This involves determining the criteria for how commissions are calculated, setting quotas for individual sales reps, and continually evaluating your sales team's performance.
The cornerstone of these efforts lies in crafting a winning sales compensation plan, which includes detailed information about the pay structure of each salesperson including their base salary, incentives, commission, and benefits.
“Sales Compensation” vs “Sales Commissions”
Sales compensation involves an employee's total compensation package, while sales commissions are a specific type of incentive paid out in addition to baseline pay. Sales reps earn these additional amounts when they meet certain targets or goals. Typically, commissions are paid out based on sales volume, or the number of sales that an individual rep brings in.
While both sales compensation and sales commissions are important components of the overall sales process, they play very different roles.
Types of Sales Compensation Plans
Sales compensation plans can grow incredibly complex, but two of the most common models are activity-based and outcome-based compensation. Let's take a look at the pros and cons of each approach to determine which might be right for your organization.
Activity-Based Compensation Plans
An activity-based compensation plan takes a long-term approach to sales. It involves tracking sales efforts in incremental steps, including client calls, sales meetings, and other customer interactions. This compensation plan rewards sales reps for completing each action and emphasizes the importance of sales best practices.
This model uses a lower-pressure approach designed to build lasting relationships with customers verse making an immediate sale. This method eliminates the need to immediately close a deal and allows your sales reps to nurture and deepen connections and build long-term customer trust and loyalty. It also fosters the adoption of a team-based approach to sales, lending itself to better workplace relationships and a more cohesive company culture.
A potential drawback to the activity-based sales compensation model is the lack of immediate sales in the hopes that fostering a relationship with clients might pay off someday in the future.
Outcome-based sales compensation plans
An outcome-based compensation plan rewards sales reps for closing sales and applies far less attention to checking items off of an activity checklist. Outcome-based plans focus solely on the bottom line.
Sales reps are only compensated only after a deal is finalized, incentivizing teams to close deals in the fastest time possible. This requires much less data tracking and shifts the burden from the organization to the sales rep.
On the downside, outcome-based compensation plans can place sales reps in constant competition with one another and promote a “close-at-any-cost” culture that can place your business at risk.
A Mixed Sales Compensation Plan
Many companies opt to blend these two approaches in what is referred to as a mixed plan. A business may assign activity-based compensation plans to their junior salespeople and use an outcome-based plan with seasoned sales veterans.
Popular Sales Commission Models
Sales commission models can also vary wildly, but there are a handful of common sales commission models you should know. Let’s take a closer look.
#1: Base Salary Plus Commission
The most common type of sales compensation plan is a base salary plus commission model. This method rewards sales reps with a fixed salary with commissions to be added based on performance. Typically the ratio is 60% fixed with a variable of 40%. These numbers can vary.
#2: Straight Commission
Under a straight commission plan, sales reps do not receive a base pay but are treated to a higher commission rate than usual. This method tends to attract more aggressive sales reps but offers less stability leading to a higher rate of turnover.
#3: Absolute Commission
Absolute commission plans reward sales reps for hitting set goals and performing specific activities. These activities can include acquiring new customers, meeting call count quotas, or hitting a set number of sales-qualified leads (SQLs).
#4: Relative Commission
A relative commission plan allows sales reps to earn commission based on a set quota instead of an exact revenue amount.
#5: Straight-Line Commission
A straight-line commission plan sets commission based on a quota. This plan incentivizes sales reps who may be underperforming to meet quotas by increasing the sales commission percentage. This method removes the sales cap in order to motivate sales reps to reach higher levels.
Other notable forms of sales compensation
Profit sharing
Profit-sharing incentives are similar to commissions. The goal of increasing the company's profit in order to benefit everyone. This incentive method boost teamwork and employee loyalty. For this type of incentive, organizations may track each employee’s individual contribution to the overall company success by measuring work hours and client engagement.
Production bonuses
Organizations may offer team members bonuses for meeting production goals for manufacturing and warehouse teams. Managers may set goals for individual employees or teams. Tracking these incentives often consist of how much each individual employee contributes to goal achievement or the team’s overall performance.
SPIFFs (Sales Performance Incentive Funds)
One of the most popular forms of incentives lies in SPIFFs — Sales Performance Incentive Funds. These bonuses offer a special reward for hitting a specific goal during a given period of time. While spiffs are largely financial, they can also include additional incentives like vacations, prizes, and more.
Sales Commission Calculator vs. Sales Compensation Management System (SCMS)
If you’re looking for a sales commission calculator to solve your sales compensation management needs, you might be out of luck. Online tools like sales commissions calculators lack the advanced functionality your organization needs to thrive.
That’s why smart businesses use integrated, Sales Compensation Management Systems (SCMS) — software/platforms that help organizations better manage their compensation efforts.
An effective sales compensation management system should make life easier by reducing and automating repetitive busy work, ensuring the accuracy and integrity of your data, reducing your financial and legal exposure, and increasing the visibility of essential information.
Unfortunately, not all SCMSs are created equal. Here are some critical areas you should evaluate when selecting your SCMS.
Selecting a Sales Compensation Management System Software or Platform Provider
Automated Sales Commission & Compensation Calculations
A proper SCMS should streamline your sales compensation processes, eliminating the need for manual spreadsheets and saving time by centralizing data from multiple sources, such as CRMs.
Sales calculations are generated automatically and are free from human error, streamlining the transformation process from weeks to days. This means faster month-end closing and a more transparent and accurate commission tracking process.
Modern Sales Compensation Reporting & Shared Data
A quality CRM, like SalesVista's cloud-based SCMS, makes it easy to set user-level access and control the sharing of data between authorized users in various departments. Each authorized user can access their own data management software or spreadsheets, meaning the company now has more accurate real-time data in a central web-based database. This process eliminates any possible miscommunications or miscalculations and ensures that everyone has access to-to-date information.
Improved Compensation Transparency: From Account to HR and Sales
Centralizing compensation data should streamline your internal processes and data transparency for reporting and auditing making it easier to track with fewer errors while keeping necessary information at the ready. This will make it easier to explain compensation plans to both employees and managers.
This automated system should provide an audit trail for financial processes, while also maintaining the transparency needed for intelligent business forecasting. A proper SCMS should also track budget planning, recruiting, and top talent retention, while pointing out areas for business growth.
This type of transparency will help explain how employee commissions are calculated and plan bonuses and pay adjustments. This will also allow the organization to plan employee incentive programs and create customized KPIs for improved workplace performance.
Reduced financial risk
Manual compensation management is plagued with potential risks. Human error and inaccurate data are just some of the many pitfalls organizations face when it comes to compensation management.
By using rules-based workflows and approval standards, an SCMS can automate processes to improve the governance of compensation for sales, finance, and accounting managers.
Ultimately, this will help with improving decision-making processes and reducing financial risk.
What makes Sales Vista the best Sales Compensation Management System?
Sales Commission Tracker
SaleVista’s commission tracker helps you keep up-to-date information on commissions, bonuses, and other incentives in one central location. This will help your organization improve performance with unparalleled visibility and lighting fast speed. Other benefits include:
- SalesVista Portal access for greater visibility across multiple teams.
- Rapid Implementation of source data to help drive the plan outcomes.
- East-to-use plan configuration, assignment, and changes.
- Real-time performance data availability.
- Less work and greater management of your sales team’s incentive plans.
You can request a demo of our Sales Commission Tracker, here.
Personalized Service and Support
Having a reliable and secure SCMS in place is only half the equation. The other half involves optimizing its capabilities to best serve your business. That’s why SalesVista’s comprehensive software solutions are personalized to fit your organization's specific needs.
Our personalized service extends beyond implementation and includes onboarding, end-to-end training, workstreams, micro-learning, and more!
Superior Data Integration & Auditing Capabilities
SalesVista’s cloud-based SCMS integrates your data into one centralized, automated system making tracking, sharing, and reporting easy. Unlike customer relationship management (CRM) systems, SCMSs feature a robust interface that manages, analyzes, tracks, and calculates your business data to provide you with key business insights in real time.
SalesVista’s easy-to-navigate dashboard displays data based on the metrics that are most important to your organization. This gives management a clear view of your company's complex data, financial reports, and compensation plans. SalesVista’s SCMS allows for instant access to important data, such as month- and year-end analyses, to save to help save time for organizations and manpower.
Our solutions also include access to internal and compliance audits that ensure data is current and accurate and that all your organization's processes meet necessary industry standards.
Subject matter experts (SMEs)
SalesVista specializes in compensation management and continuously works to improve our products in order to provide our users with hands-on expert service. Our team of highly trained subject matter experts (SMEs) is equipped with the knowledge to show your sales reps everything they may need to know about compensation plans and how to manage and track data.
Our experts simplify this once-complex process and are able to transform it into compensation plans that are easy to understand and communicate to shareholders, employees, managers, and employees.
Ready to get started?
Transforming your sales compensation management efforts is easier than you think; you just need the right partner. To discover what SalesVista can do for you, request a demo or contact us today!
