How to Choose a Sales Commission Structure for Your Business
There are more than 600,000 businesses created in the United States each year. Not every company goes on to become successful in its industry, however.
One of the most important aspects of a successful business is having the right systems in place. This is particularly true when it comes to your sales commission structure. However, not everybody understands how to create the ideal system for sales commissions.
Let's take a closer look at everything you need to know.
Establish Your Goals
As you might guess, your first step should be to establish the overall goal for your sales commission.
Consider what performance metrics and customer satisfaction levels you would like to achieve. Once this is established, you can start structuring the appropriate rewards system.
It's not uncommon for executives to spend months planning their sales commission rates. Comprehensive planning will go a long way. Don't neglect this obligation.
Understand Different Types of Commission Structures
Research the different types of commission structures and which ones are most suitable for your business. This includes looking into fixed-rate commissions, sliding scale commissions, and performance-based commissions.
Other types include gross margin commission, tiered commission, and residual commission. Research all of these before making a decision.
Consider what types of commission on sales could help motivate sales teams. Part of this research could include asking your team members. Take their feedback into account so that you can keep them satisfied.
Design the Commission Structure
The next step is to design the commission structure itself.
This could include setting up performance targets and reward thresholds. Establishing a timeline for when salespeople will receive their commissions is also essential. It's also important to consider flexible payment methods, such as quarterly or biannual payments.
Flexibility will help avoid issues with compensation as time goes on. This will help your employees stay more motivated. By extension, this will lead to better sales performance.
Consider Turnover Rates
When designing your commission structure, it's also important to factor in turnover rates. If you have a high turnover rate, then you need to consider how that might impact your overall commission goals and objectives.
You may also want to consider hiring more salespeople or offering incentives. This could include bonuses if they stay with the company for a certain length of time.
Minimizing turnover will help increase your overall sales performance. It will also give you more of an opportunity to establish the right commission structure.
Job Description Is Relevant
As you might assume, the job description of your salespeople is also relevant when it comes to your commission structure. If your sales team is tasked with different roles and responsibilities, then you need to adjust the commission structure.
If certain employees specialize in closing deals, then they should be compensated accordingly. This will also go a long way toward maximizing employee happiness.
Evaluate Your Structure and Make Changes Accordingly
It's essential to evaluate the effectiveness of your sales commission structure on an ongoing basis. Monitor performance metrics and customer satisfaction levels to ensure that you're getting the desired results from your system.
If necessary, make changes as needed to ensure that your system is working effectively. In general, it's best to audit your sales commission structure every few months. This will allow you to place emphasis on strategies that work for your business.
You can also phase out methods that don't generate the results you need. Over time, your commission structure will continue to become more effective and efficient.
Use the Appropriate Software
Using the right sales commission software can go a long way in helping you manage your system more efficiently.
This can include features such as tracking sales performance and providing detailed reports. You can also integrate the software with other business systems, such as your customer relationship management (CRM) system. This will help ensure that every aspect of your sales commission structure is properly managed.
Analyze Individual Performance
Always analyze the individual performance of each team member. This will help you determine which individuals are excelling.
It will also determine which ones need more support or guidance. It's also important to provide feedback on a regular basis. Your employees will learn what they can do to improve their sales results.
In many cases, this might only require slight adjustments.
You can provide advice on how they can better meet customer needs or come up with better strategies to maximize sales. From there, you can adjust their commission structure accordingly.
Incorporate automation wherever possible to streamline your sales commission structure. Automation can help simplify the process and save you time. This also eliminates the need for manual calculations and paperwork.
This is particularly useful if you have a large sales team. The same can be said if your system involves multiple performance metrics. To get started, consider what tasks can be automated and how they can be integrated into your existing commission structure.
You can also work with a professional to help ensure that you stay on the right track. Just be sure to do your research and find a reputable firm.
You Shouldn't Overlook a Sales Commission Structure
The right sales commission structure can help take your performance to the next level. Consider the above info so that you can navigate obstacles you encounter.
You can then make the best decision for your company.
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