What’s the right sales compensation model for your teams?

Sales compensation is a critical part of any B2B company’s success. The right sales compensation model can help attract and retain top talent, motivate sales reps to close deals, and ensure that the company’s sales goals are met.

There are a number of different sales compensation models that can be used in B2B companies. The most common models include:

• Straight commission. This model pays sales reps a commission on each deal they close. The commission rate is typically based on the value of the deal.
• Base salary + commission. This model combines a base salary with a commission on each deal closed. The base salary provides a guaranteed income, while the commission provides an incentive to close more deals.
• Draw against commission. This model allows sales reps to draw a salary against their future commissions. The draw is typically equal to the base salary. If the sales rep does not generate enough commissions to cover the draw, the company will make up the difference.
• Performance-based pay. This model rewards sales reps based on their performance, which is typically measured by their sales volume, sales goals, or customer satisfaction.

Each of these models has its own advantages and disadvantages. The best model for a particular company will depend on a number of factors, including the company’s sales goals, the type of products or services it sells, and the size of its sales team.

Below are some of the pros and cons of each sales compensation model:

• Straight commission:
  • Pros:
    • Motivates sales reps to close deals
    • Simple to administer
    • Cost-effective
  • Cons:
    • Can be volatile
    • Can lead to unethical behavior
    • Can be difficult to attract and retain top talent
• Base salary + commission:
  • Pros:
    • Provides a guaranteed income
    • Motivates sales reps to close deals
    • Simple to administer
  • Cons:
    • Can be expensive
    • Can lead to complacency
    • Can be difficult to attract and retain top talent
• Draw against commission:
  • Pros:
    • Provides a guaranteed income
    • Motivates sales reps to close deals
    • Simple to administer
  • Cons:
    • Can be risky for the company
    • Can lead to complacency
    • Can be difficult to attract and retain top talent
• Performance-based pay:
  • Pros:
    • Motivates sales reps to perform well
    • Simple to administer
    • Cost-effective
  • Cons:
    • Can be difficult to measure performance
    • Can lead to unethical behavior
    • Can be difficult to attract and retain top talent

Finally, here are some simple ways to make a decision on which sales compensation model to adopt:

1. Consider your company’s sales goals. What are your sales goals for the next year? The sales compensation model you choose should help you achieve those goals.
2. Consider the type of products or services you sell. Are your products or services complex or simple? Are they high-ticket or low-ticket? The sales compensation model you choose should be appropriate for the type of products or services you sell.
3. Consider the size of your sales team. Do you have a small sales team or a large sales team? The sales compensation model you choose should be scalable to the size of your sales team.

No matter what decision you make, always:

• Talk to your sales team. Get their input on what they think would be the most motivating and fair sales compensation model.
• Consider your company’s budget. Sales compensation can be a significant expense, so make sure you factor in the cost of the model you choose.
• Be flexible. The best sales compensation model may not be the same for every company. Be prepared to adjust the model as your company grows and changes.