Sales Team Compensation Models: Which Structure Works Best?

Base Salary Only: Steady Pay, But Is It Enough?

Some companies just pay their sales team a regular salary. It's like getting an allowance no matter how many sales you make. This way, sales people always know how much money they'll get.

Good things about this:

• Sales people don't have to worry about their pay changing
• It can be less stressful
• It might work well for jobs where sales is only part of what they do
• People might work together better because they're not competing for extra money
• It can be good for selling things that take a long time or are complicated

Not-so-good things:

• People might not try as hard to make more sales
• Really good sales people might feel like they're not getting paid enough
• Some people might get lazy and not sell as much
• It might be hard to get really good sales people who want to earn more for selling more

Commission-Only: Big Rewards, Big Risks

With this type of pay, sales people only get money when they make a sale. It's like being a treasure hunter - you only get paid when you find treasure. This can be really exciting for some people but scary for others.

Good things about this:

• It can make people work really hard because more sales mean more money
• Really good sales people can earn a lot
• The company only pays when someone makes a sale
• It attracts people who are confident and motivated
• It can make people look for new customers all the time

Not-so-good things:

• It can be very stressful for sales people
• If sales are slow, they might not make any money
• People might focus too much on quick sales instead of making customers happy long-term
• Lots of people might quit if they can't make enough sales
• Some people might do bad things to make sales

Base Salary Plus Commission: The Popular Choice

This way of paying is like mixing the first two. Sales people get some regular money, plus extra for each sale they make. It's the most common way to pay sales teams because it gives both safety and a reason to work hard.

Good things about this:

• Sales people have some money they can count on
• The extra money for sales makes them want to sell more
• It can work for lots of different types of sales jobs
• It helps when sales are slow but still rewards people who do really well
• It can help get and keep good sales people

Not-so-good things:

• It can be hard to figure out how much regular pay and how much extra pay to give
• Some people might only focus on sales that give them the biggest extra money
• It might not make some people work as hard as just getting paid for sales
• It can be confusing to figure out how much someone will get paid

Many companies give 60% regular pay and 40% extra pay for sales. But this can change depending on the company and the job. Some might do 70/30 or 80/20, especially for harder sales jobs or when it takes a long time to make a sale.

Tiered Commission: Climb the Ladder for Bigger Rewards

With tiered commission, sales people get more extra money as they sell more. It's like a video game where you get better prizes as you reach higher levels. This way of paying is meant to make people keep trying to sell more and more.

Good things about this:

• It makes sales people want to keep selling more
• Top sellers can earn a lot more
• It can make the whole team work harder
• It gives clear goals for sales people to aim for
• It can help keep really good sales people who like earning more

Not-so-good things:

• It might be confusing if there are too many levels
• Some people might feel stressed if they're close to the next level but can't quite get there
• It might make people compete in a way that's not good for the team
• People who don't sell as much might feel bad if they can't reach higher levels

Profit Margin-Based Commission: Focus on Quality Sales

This way of paying is based on how much money the company makes from each sale, not just how much stuff is sold. It's like getting a reward for finding the best deals, not just any deals. This helps make sure that what's good for the sales person is also good for the company.

Good things about this:

• It makes sales people focus on selling things that make more money for the company
• It can help the company make more money overall
• It might make customers happier because sales people try to find the best solutions
• It stops people from giving too many discounts that might hurt the company
• It makes people think more about long-term money-making, not just quick sales

Not-so-good things:

• It can be harder for sales people to know how much they'll earn
• Some might not want to sell things that don't make as much money, even if they're good for the customer
• The company has to share more information about how much money it makes, which some might not want to do
• It might be hard to do this if prices change a lot or costs are complicated

Non-Monetary Rewards: More Than Just Money

While money is important, other types of rewards can also make your sales team happy and want to work hard. These can be used with any of the other ways of paying and can make people feel even better about their job.

Some examples of non-money rewards:

• Extra days off for top sellers
• Special training or chances to learn new things
• Getting recognized, like "Best Salesperson of the Month" awards
• Flexible work hours or working from home
• Tickets to fun events
• Chances to move up in the company or get advice from leaders
• Programs to help people stay healthy
• Opportunities to lead important projects or work with big clients

These rewards can make your sales team feel more appreciated and motivated, even if they're not directly making more money. They can also make the company a better place to work and make people happier in their jobs.

Choosing the Right Model for Your Team

Picking the best way to pay your sales team takes some careful thinking. It's not about finding one way that works for everyone, but finding what's best for your company, your goals, and your sales team.

When choosing how to pay your team, think about:

• What kind of things you're selling
• How long it usually takes to make a sale
• What your company wants to achieve
• What makes your team members want to work hard
• What other companies in your field are doing
• How much money your company has and how it manages its money
• How experienced your sales team is
• How much you want to reward individual work vs. team work

Remember, you can mix different parts of these pay models. For example, you might use a base salary plus commission, but add in some tiered commission for bigger sales. This lets you create a pay plan that works for many different goals.

The key is to find a balance that:

• Makes your team want to work hard and sell more
• Fits with how much money your company can spend
• Is fair and easy to understand
• Helps you get and keep great sales people
• Matches what your company believes in and wants to do in the future
• Can be changed as your business grows and changes

Remember, the best way to pay is one that works for both your company and your sales team. It might take some tries to get it just right, but it's worth it to have a happy, motivated, and successful sales team.

Conclusion: Finding Your Perfect Fit

There's no one perfect way to pay all sales teams. Each way has good and bad points, and what works best depends on your specific situation. The important thing is to choose a way (or mix of ways) that makes your team want to work hard, fits with what your company wants to do, and matches how much money you can spend.

Remember these important points:

• Base salary gives steady pay but might not make people work as hard
• Commission-only can lead to big sales but also lots of stress
• Base salary plus commission is popular because it mixes steady pay with extra rewards
• Tiered commission and profit margin-based pay can encourage specific behaviors
• Non-money rewards can make people feel good about their job and work harder

Whatever way you choose, make sure it's clear, fair, and you check it regularly to see if it's working. Your sales team's success is really important for your company to grow, so it's worth spending time to create the right pay plan. It's a good idea to ask your sales team what they think when you're making or changing your pay plan – they might have great ideas about what would motivate them.

At Marco Giunta, we know how important it is to have good sales strategies and keep your team motivated. If you want to learn more about sales and how to grow your business, check out our blog for expert advice and tips. Remember, a good pay plan is just one part of having a great sales team – you also need good training, supportive leaders, and a positive company culture to build a team that performs really well.