How To Structure Your Sales Reps Commission At A Small Business
As a small business, it’s important to stay competitive and ensure your team is incentivized to perform well.
It’s inevitable that you’ll need to hire sales representatives to help your company grow. But with any new hire, comes great responsibility. How can you make sure that you’re setting your team up for success? Start by having proper on-boarding, training, and competitive compensation packages.
The best sales reps want to make money, so you need to offer an attractive compensation package to attract the best. You may not have a fancy training program or detailed structure to throw at them. But that’s where your power comes in!
You can be more creative with your packages and tailor them towards what makes sense for the position that you are recruiting and the company. . Together, we’ll dive into how to create incentives that will attract talent, drive sales, boost productivity, and keep your team happy.
What to consider when creating my commission packages?
Have Clear Goals and Lead with Data:
Start by defining clear, measurable goals that align with your company's growth strategy. Whether it's increasing sales, driving customer acquisition, improving product development cycles, or increasing customer satisfaction, having defined metrics is crucial to evaluate your team's performance.
Be Competitive:
While you may not be able to offer high base salaries as larger corporations, you can still be competitive. Make sure you’re offering market-rate base salary,performance-based bonuses and opportunities to advance their career. Do market research or work with a recruiter to share these insights. Stay competitive with your industry. Your package should reflect the value your new hire will bring to your company.
Potential to Earn Equity
Equity is a very motivating incentive for new hires. It shows that you are committed to investing in them as your company grows and that they are thinking about the long-term success of your startup.
Transparency and Communication:
Establish transparent communication with your new hires. Make sure all your employees understand how their performance directly impacts their compensation.
Sit down and have one-on-one meetings with them. Show them the numbers and clearly outline the requirements needed to be met. Incentivize them by showing them the reward they’d receive if they meet those numbers. And celebrate all the wins as a team!
Be flexible
Be prepared to adjust incentive structures as the company grows, markets change, or new opportunities arise. Talk to your team. Get feedback from them directly. Understand what motivates them today vs. what motivated them a year ago. Check-in and be willing to adapt where needed.
Now, let’s dive into how to structure your package. While doing this, we need to make sure it aligns with both your company's goals and your sales team's motivations.
Step-By-Step Guide to Determining Commission Structure
First, Define your business goals
Before even thinking about your sales team’s commission. You need to sit down with yourself and think about your business goals. Then take those and think of how your sales team can achieve those. Some examples of goals to get you started: increase revenue, acquire new customers, launch new products, or expand into new markets.
Next, Determine Commission Structure
There are a few common commission structures you can consider:
- Commission on commission: your sales rep will earn a percentage of their sales revenue. While this is straightforward and won’t cost you money upfront, it may not be the most consistent income for reps, which could result in poor performance/ employee turnover.
- Base + Commission: sales reps receive a base salary + commission on their sales. This is a great starting point and puts you ahead of companies that are only offering commission. It can be a good blend of providing your sales rep stability while incentivizing them to keep performing.
- Ramp up period + base + commission: Designate an on-boarding plan for your new hires sales rep. For 30 days, they are still ramping up, understanding your business, developing their book of business, etc. Give them some grace. Set attainable goals and give them a buffer period. This can help your sales rep integrate with the team while not getting too stressed or overwhelmed by goals, maintaining a stable income while providing opportunities to increase as they get better.
- Tiered Commission: Commission rates increase as sales targets are hit or exceeded. This allows your company to grow while encouraging reps to drive for more sales.
- Profit-Based Commission: Sales reps earn a commission based on the profitability of their sales rather than just the revenue generated. This blends your reps' incentives with your company's bottom line but can also be more complex and lead to miscommunications regarding what the profit is.
- Offer Additional Incentives: Consider offering bonuses, rewards, or incentives for star performances. What happens if your reps beat sales targets? Can they win friendly sales competitions within your team?
Lastly, drive these conversations with your rep:
Define Performance Metrics:
Make sure you and your rep understand what numbers need to be met for their commission. Some metrics to consider: total sales revenue, number of new customers acquired, sales of specific products or services, or sales in certain markets.
Document the Commission Plan:
Document your decided commission structure. Sit down, walk through everything with your rep. Encourage them to ask questions. Hear what they have to say. Do they have other incentives they’re interested in? Could you add these in? Or consider them after 90 days of performance? Tailor your plan to your rep and your business. Make sure you’re both on the same page and drive those sales!
Commission and incentive packages are tools to be leveraged in startups. You can drive team performance, attract top talent, and create a strong company culture. They can also be your pitfall if not executed correctly. It’s important to set your team up for success. You do this by showing them you care and creating compensation plans that are exciting for them. Use your flexibility as a start-up to your advantage!
