How do I work out a commission structure for my sales team?

Setting an effective commission structure that benefits both employer and employee can prove a daunting task for many a Technology business, especially when run by a founder without a background in sales.

To make matters worse, once they are put in place they are notoriously difficult to change, and are often met with resistance from the sales team.

Keep it simple

Speaking from my own experience in software sales, there’s nothing worse than a commission structure that needs a calculus degree to work out what you will be getting paid from month to month.

Often the best schemes have a flat structure where the sales person gets paid x% of the gross profit they have brought in a set month.

Pay on GP

In most circumstances, it is favourable to the business for the commission amount to be paid as a percentage of the profit attained by the sales person in a set month,

Paying commission on margin rather than revenue discourages unnecessary discounting by sales people.

Additionally, it prevents circumstances whereby deals cost the business money.

An example of which would be a business working on small margins and paying commission based on revenue generated. The sales person’s commission could equate to more profit than the company has made in a given sale (which believe it or not does still happen from time to time today).

The general exceptions to where paying commission on GP is best practice are Recruitment Consultancies and Software Vendors, where most (if not all) of the revenue can be perceived as GP.

Use both the Carrot and the Stick in the structure

Incentivising your staff to over-achieve against their sales quota by offering an ‘accelerator’ is good practice.

This often consists of an increased rate of commission or bonus for over achievement (say 120% of target), and can help encourage the team to stay motivated and keep on pushing in good months.

By the same token, there should be a cut off threshold whereby commission is only paid above a certain figure against target. As an absolute minimum the sales person’s generated GP should be covering their costs (base salary + National insurance, expenses, car allowance, phone, office space etc) before commission is paid.

Make it a win-win

All too often companies get commission plans wrong, occasionally they pay the staff too much, but more often than than not they pay the team too little, or there are ‘loop holes’ which allow companies to implement claw backs.

I have worked with under and overpaying Tech Sales companies, and the effects on staff motivation in both camps are crippling.

A commission scheme must enable the team to be profitable whilst have great earning potential for successful sales people.

This will help enable your business to attract and retain a leading sales function, and create a culture of success.

Be competitive in your industry

Do you know the industry standard earnings in your sector? How would a successful sales person in your team fare financially compared to at your competitors?

In today’s competitive sales environment Money Talks and loyalty is dear.

Do not cap earnings

As a sales person there’s nothing worse than capped earnings.

Imagine the scenario where you have brought in that big ticket client that you have been working on for 18 months, travelling the length and breadth of the country attending meetings, and spent hours working on proposals until midnight – the deal make your company very profitable.

You’ve worked your commission figure out and already spent it in your mind – until you find out you have ‘hit your commission cap’ or hear from your manager that ‘the boss thinks you are getting paid too much on this deal’.

This is a sure fire way to loose your best sales people to your competitors.

Provided the structure has been set correctly and you pay the sales team on profit, you should be delighted to write huge commission cheques out to the sales team, as it means they are doing exactly what you hired them for – to sell in great numbers!

To learn more about building a Tech Sales team, or to request a free copy of our Commission & Salary Calculator to work out the cost/return of employing a sales team, please contact Incrementa on 0207 043 0700 or www.incrementagroup.co.uk.