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Sales Commission Plan Checklist

 

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Sales Commission Plan Checklist A sales commission plan shows an amount of money a sales representative receives as a compensation for the sales volume generated by this person. The following Sales Commission Plan Checklist explains how to establish commission for sales agents and representatives.


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1. Reasons to Choose Commission-based Payout.

  • Selling cycles in your company are rather short and performance measures are straightforward, so you can implement an incentive payout system
  • Sales success is the achievement of an individual salesperson’s effort (rather than a team effort)
  • Motivation and commitment of sales agents are high
  • The management team no more feels it is important to closely supervise and monitor sales force effort, because commission payout entails effective sales management based on actual results achieved by salespeople
  • Sale force is expected to focus on sales-related tasks
  • The market is fast-growing, and so it is difficult to forecast future demand

2. Commission Components.

  • Quotas. There are two kinds of quotas including targets and floors
    • Target Quota is the planned amount of products/services a salesperson needs to sell
    • Floor Quota  is the minimum amount of products/services a salesperson is allowed to sell
  • Revenue. Consider making this component of sales compensation lower for sales representatives and higher for business development personnel
  • Gross Profit. Calculate gross profit from sales by determining different types of revenue (sales channels, verticals, or product lines) and then use quotas (either Target or Floor) to estimate total cost of purchases that have been made.

 3. Commission Types.

  • Salary Only. Use this type of sales commission for several reasons, as follows:
    • New sales employees are brought into your company
    • A new territory is opened so the company needs some time to deploy and speed up sales activities
    • Motivating salespeople to achieve key success factors that do not relate to sales revenue
  • Straight Commission. Add this commission type to your plan if you want to:
    • Motivate highly aggressive selling behaviors
    • Maximize sales volume in a shorter period
    • Focus salespeople on sales activities rather than other tasks such as customer service and support
  • Combined. Choose a combination of both commission types if you are sure that:
    • Salespeople in your firm want to receive a stable average salary
    • The senior management wants to get the advantage of rewarding salespeople for their tasks related to mid-term revenue
    • There is a need to motivate salespeople for generating sales revenue and profitability smoothly, without sudden changes in sales volume

4. Commission Considerations.

  • Develop your sales commission plan in conjunction with the company\'s overall planning process
  • Involve your sales team in designing the plan, so that they can contribute their valued ideas and feedback taken from real-life experience
  • Make certain the compensation plan focuses on both tactical sales goals and the company\'s strategic objectives
  • Be sure the plan considers business-related measures, including profit, growth, market share, products, company development
  • Keep your plan up-to-date and relevant to the industry level
  • Develop metrics and measurable criteria for assessing status of sales performance
  • Keep your plan simple yet complete
  • Add adequate commission rates to the plan in order to motivate your sales force and decrease employee turnover
  • Make your plan oriented towards the desires of your sales staff
  • Consider including a fixed salary component to the plan if you want your sales team to be committed to long-term engagements and relationships with customers
  • Keep your sales commission plan differentiated, so that.....

 



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