Are you responsible for designing commission structures? This is always challenging because there are so many ways to go, with a myriad of subtle variations. However, if we break down the design process into key steps, it becomes easier! Here are some key questions to consider when designing each component of your incentive program:
- Who is eligible?
- This plan is for senior AEs
- This plan is for junior BDRs
- Which deals are eligible?
- Closed won opportunities for AEs
- Completed appointments for BDRs
- Which attainment metric?
- Total revenue for AEs
- A count of appointments for BDRs
- Which attainment goals?
- Progression towards a YTD quota, with tiers (0-100%, 100-150%, 150%+ of quota) for AEs
- Monthly appointment goals, with milestones (15+, 25+ appointments) for BDRs
- Which commission rules?
- All tiers are cumulative
- Commissions for services is 5%
- There is a $1000 bonus at 25+ appointments
- Blended rates are applied when crossing tiers
- Which payment frequency?
- Monthly (with YTD progression towards goals) for AEs
- Quarterly (performance bonus) for BDRs
- Any special conditions?
- Any cap or exclusion?
- Any manager override?
- Any team-based goal?
- Any draw for new hires?
- How are refunds handled?
- Deploy and measure
- What is our communication plan?
- Who owns calculating commissions?
- Do reps need to sign an agreement?
- How are quotas set and updated?
- Can managers adjust commissions?
- Is the projected cost reasonable?
Besides those “mechanics”, we also need to make sure our commission structure makes sense. The following 4 questions may help you reflect whether your incentive program has meaning.
Is It Motivating?
If incentives are insufficient (or indistinguishable – i.e. attainment has no real impact), your reps won’t care, and your commission plan just becomes overhead. The reason you are paying commissions is for measurable results. For this reason, they need to be somehow exciting and correlated with performance.
Does It Provide Direction?
If your structure is too complex, or includes too many concurrent goals, your reps won’t know which specific behaviors or actions are expected from them. A good question to ask yourself is – if I was in their feet, would this commission structure tell me what I should do to earn more money?
Is It Attainable?
If goals are unattainable, they become annoying (or even ridiculed). Well-designed sales performance goals should empower 15% of reps to exceed them, 15% to fail completely, and 70% to attain them. Goals should be hard but not impossible to attain. There should be something for middle-of-the-pack reps.
Is It Well Aligned With Business Objectives?
Are your commissions just a tax on your business? Or do your commissions promote and support key business goals? Whether your priority is closing new customers, reducing churn, or increasing revenue, your commission structure should be aligned with business goals and advertise them loud and clear.
In Conclusion
We hope you found this post useful! For additional help with commission plan design, check out this more detailed article or our in-depth commission design guide. To automate your incentive program and increase your commission agility, visit us online.
Sales Commissions Explained 