There are many types of ‘Base’ commission structures a sales manager may use to motivate sellers:
- Percentage Rate Per Deal - straight forward percentage of a Deal Value. This may be the same for all sellers or negotiated separately
- Fixed Amount Per Deal / Unit - For every deal made or unit sold, the seller will get a fixed amount
Sometimes a sales manager will deter the sales of certain products by reducing the impact that subset of products has on the sellers agreed Target / Quota.
Example:
- Let’s say a sales manager wants to promote the sale of SaaS over Legacy Software, they might apply a rule where 100% of the SaaS deal value gets retired against the agreed Target / Quota. They might only allow 50% of the legacy software deal value to be retired against the agreed Target / Quota. This mechanism means that it has a ‘softer’ effect on the sellers take home pay and they will meet their Target / Quotas a little slower if they chose to sell the legacy products. Of course, they can chose to pay out different rates entirely for each of the products for a stronger impact eg SaaS 10% commission rate and Legacy 2% commission rate.
- Once the‘Base’ commission has been defined, a sales manager can also implement tiers. A ‘Tier’ represents how much of the ‘Base’ commission is payable to the seller based upon how much of their agreed Target / Quota is hit. Applying tiers can penalize sellers for under performance and reward them for over performance.
- Deal Multipliers are also an effective way of ensuring that deal quality is maximised. In the scenario of SaaS, customers can sign up to contracts of varying length. Sales managers can use multipliers to reduce or increase commission based upon a characteristic on the deal - eg 12 month deals - only gets 50% of the commission, 24 months year gets 75% and so on.
- Quite often, once the sale is complete, there are still a number of administrative tasks that need to occur eg Invoicing and payment for that invoice. In traditional sales environments, once the sale is closed, the seller is paid the commission. However, increasingly, sales managers are promoting an end-to-end accountability for sellers by introducing ‘Staged Commissions’. When the deal closes, they might pay out 50% of the total commission due and when the Invoice is paid, they might pay out the remaining 50%. This can help to minimize the likelihood of cancellations in the cool off period
Now you have seen how you might use Incentivize to build a smarter compensation plan that encourages your reps to sell the right combinations and see the sales through right to the end maximising the potential ROI.
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Author
Susan Stevenson
Susan began her Salesforce career whilst working as a Business Analyst in Australia and then worked for several consulting partners as a functional consultant. She joined Leaptree when she returned home and has been working alongside Leaptree's customers as Customer Success Manager to implement both Optimize and Incentivize. As a Certified Salesforce Solution Architect, her technical and functional skill set makes her well placed to help our customers get the most out of our products.