Variable compensation is a critical component of any B2B sales team’s compensation plan. It’s a way to reward top performers and incentivize sales reps to hit their quotas. But there are many different variable compensation models out there, and it can be tough to decide which one is right for your team.
Here are a few factors to consider when making your decision:
- The type of products or services you sell. If you sell high-priced, complex products, you’ll need a variable compensation model that rewards reps for closing large deals. On the other hand, if you sell low-priced, commodity products, you may be able to get away with a lower variable compensation model.
- The length of your sales cycle. If your sales cycle is long, you’ll need a variable compensation model that rewards reps for their persistence. On the other hand, if your sales cycle is short, you may be able to get away with a simpler model.
- The experience level of your sales reps. If you have a team of experienced sales reps, you can afford to have a higher variable compensation model. On the other hand, if you have a team of new sales reps, you may want to start with a lower variable compensation model and increase it as they gain experience.
- Your company’s overall financial goals. If you’re a startup, you may need to keep your variable compensation costs low. On the other hand, if you’re a more established company, you may be able to afford a higher variable compensation model.
Once you’ve considered these factors, you can start to narrow down your options. Here are a few of the most common variable compensation models:
- Straight commission: This is the simplest variable compensation model. Reps earn a commission on every sale they close.
- Tiered commission: This model rewards reps for hitting different sales milestones. For example, a rep might earn a 5% commission on their first $100,000 in sales, a 10% commission on their next $100,000 in sales, and a 15% commission on any sales over $200,000.
- Performance-based bonus: This model rewards reps for hitting specific performance goals, such as generating a certain number of leads or closing a certain number of deals.
- Hybrid model: This model combines a base salary with a variable compensation component. The base salary provides reps with a guaranteed income, while the variable compensation component rewards them for their performance.
The best variable compensation model for your team will depend on your specific needs and goals. But by considering the factors above, you can make an informed decision that will help you attract and retain top sales talent.
Don’t forget to:
- Make sure the model is fair and transparent. Reps should know exactly how they’re being compensated and how they can earn more money.
- Be flexible. The model should be able to adapt to changes in your business, such as changes in your sales cycle or your product mix.
- Review the model regularly. As your business grows and changes, you may need to adjust your variable compensation model.
