Though rewards in terms of finances still form the foundation of any sales incentive plan, the structure of the payment for the salespeople has many factors that should be considered.
The most important point that you should consider is the type of the organization −
- Is it a start-up in a growing state and that is in a desperate need to attract new sales staff members?
- Is it an already established company that caters to a matured market and possesses a seasoned staff with an array of talent to choose from?
To be real, there are numerous ways for setting up a compensation package. A single generalized package system cannot be introduced for all the companies. Some of the most common types of packages are as follows−
Basic Salary Only
Companies pay only the basic salary to a sales staff, exclusive of any variable pay, which may include commissions or bonuses. This type of a package is usually applied for the person who maintains the account and/or when the sales staff member is considered to be a coordinator of the team and does not initiate or close the sale.
It is very unusual to have a salary-only plan, because most of the salespersons usually work on increasing business by opening newer accounts, or by improving the already existent accounts. Therefore, companies would need some type of variable payments depending on their performance.
Variable Commission Only
This is considered to be another extreme type of a salary-only plan. Here, the sales staff member is paid a commission that depends on the percentage of the profits earned. Also, the commission could be determined, not just as a specific percentage of incomes, but as a combination of other attributes, including margin of profits, amount of entities sold or other parameters.
Again, the commissions can be variable in nature, and can contain certain factors that are known as promoters or demoters of the business, where depending on the increase in volume, the percentage may go up or down respectively.
It is crucial to pay commissions on a frequent basis for the results to be driven further. These plans are more typical, when the salesperson acts as an independent identity and the rate of the sale depends almost entirely on the salesperson.
Salary and Commission
In today’s sales scenarios, it is very typical to have some type of a mixture between salary and commissions. Here, a basic salary is received by the salesperson for his/her effort contributed towards the maintenance of accounts and the conduction of other non-profit making activities. However, he/she also gets compensation in the form of commissions for achieving additional business goals.
The nature of the mixture can vary within anywhere from a higher basic pay scale with a limited commission to a significantly lower basic salary with a significantly higher potential commission.
Salary and Bonus
A salary and bonus plan is almost similar to a salary and commission type of compensation plan. The basic difference between these two categories is that a bonus usually refers to a percentage of the salary (contrary to a percentage of the total sales), which may be awarded based on the achievement of the present goals.
One other difference between these two programs is that the salespeople working under most of the bonus plans usually have a lower level of effect on the sale. Like in the commissions plan, here too the companies may promote or demote. Still, it would analogous to the percentage of the salary and not to the revenue, profits, or other monetary parameters.
This is yet another type of a salary plan. In the case of a draw, the company pays money to the employee in advance. Then, the money is repaid by the employee from the amount of money earned by the employee in the future.
Typically, this is a kind of a legally bound loan, that the employee owes to the company. Head hunters often work on this model and sometimes certain salespersons are offered a similar deal.