A competitive pay structure and commission plan are essential to bringing in and retaining the best sales talent. According to a 2022 study on the Great Resignation by the PEW Research Center, most people who quit their jobs during that time did so because of low pay and no opportunities for advancement.
Part of providing competitive pay is offering incentives like a commission structure combined with a salary. But before you implement a pay structure like that, you need to map it out
Let’s look at what exactly a commission plan is, how to build one, and how monday sales CRM can help you get one started at your business.
What is a commission plan, exactly?
A sales commission plan is an outline used for a pay structure for your sales team. That pay structure usually involves two parts: a base salary and a certain amount of the total from each sale they make — the commission.
The sales commission plan outlines how much of your team’s salary will come from base pay and how much they’ll make on commission. You might choose to pay your team 70% salary and 30% commission, for example.
There are multiple pay structures that incorporate commission, but you’ll want to stay away from commission-only pay that has no base salary at all or “draw against commission” structures where employees end up having to pay their employer back. These models are unethical and can cause burnout that, needless to say, is bad for morale.
Is a commission plan a contract?
A commission agreement is the actual contract specifying that someone is being paid on commission. That agreement is part of the overall commission plan, but the plan itself is not a contract — just a framework for the team’s commission-based pay.
Why are commission plans important?
Commission plans, when appropriately structured and implemented, are an incentive for sales team members to perform higher and stay longer.Being paid accordingly for going above and beyond makes them feel valued at work, and people who feel valued in their jobs stick around longer.
Commission plans can also provide a bird’s-eye view of your sales efforts, showing you where things fall short or where they’re thriving. If, for example, there’s something bogging down the process of moving a lead through the sales funnel, you can see it in the form of stats like completed deals or successful calls decreasing.
How to make your own sales commission plan
When deciding how to structure your own commission plan, there are several elements to consider if you want it to succeed. You’ll want to know what resources you have at your disposal, and the smartest way to allocate them.
To do that, look at figures like:
- Company size
- Your budget
- Business goals
- Cost of living in your company area (if not remote)
- Goals for your sales team
These will help determine where it’s best to put the bulk of your payroll budget. You might, for example, choose to go with a monthly salary that isn’t at the top of the range but provide excellent benefits and generous commission.
1. Calculate your monthly income
Look at the revenue of your business over the course of a year, then use that as a base figure to determine your average monthly income. That number can be used to set sales quotas and identify when reps go above and beyond the average.
2. Choose your commission mix
The combination of base and commission pay is often referred to as the “commission mix.” After mapping out your goals and costs, determine how much you can afford to spend on salary and how much to put aside for commission packages.
Figure out when commissions will be paid, and make sure your sales team is all aware.
3. Match the plan to your goals
Align the plan with your goals. If you’re trying to bring in more customers, incentivize bringing in as many leads as possible. If you’re prioritizing customer retention, structure your plan to reward the people who get clients to commit long-term.
4. Keep your people informed
It’s also important to keep everyone informed on what the plan is and what’s expected of them. Make sure everyone involved in the plan knows why you’re implementing it.
Consider where and when this plan will be applied. Will it be company-wide, will you try it on a smaller pilot area first, or will it just apply to specific teams? When will it go into effect? Make sure everyone who needs to know, knows.
5. Foster a good workplace culture
If your sales team is happy in their job, that equates to happy customers, and happy customers stick around. Build incentives and opportunities to recognize team members for their hard work into your plan. That can look like:
- Making sure team members are recognized for their efforts right away
- Providing opportunities for ongoing training and growth
- Giving team members constructive and relevant feedback
- Keeping pay competitive with other businesses in your sector
Whatever commission plan you adopt should be transparent, with everyone aware of what they’ll make going in, and that pay range should be communicated to the whole team in advance of the plan’s rollout.
6. Regularly check your progress
Once you set your goals and put your plan in motion, you need to be able to monitor its progress. The easiest way to do that is to keep track of your team’s numbers in real time, so you know how everyone is performing.
If numbers go up once you roll out the commission plan, that means it’s probably working. Tracking revenue, the amount of each closed deal and individual leads brought in are all ways to see if your reps are meeting their individual goals.
monday sales CRM makes that very easy to do, and we’ll take a look at some of its relevant features in the next section.
Create and monitor commission plans with ease on monday sales CRM
monday sales CRM is a customer relationship management software that allows you to manage sales data and communication in one place.
The customizable board-based interface lets you create everything from sales flowcharts to lead databases, and the dashboard view shows you figures for the entire team at a glance. A board with every team member’s sales stats and what accounts they own, for example, makes keeping track of performance in a commission structure super simple.
Email integrations and in-board messaging also make it super easy for everyone on your team to communicate and be notified of important information.
Different people working on the same account can exchange relevant data and files, or create documents without leaving the CRM. Plus there’s no waiting on moving a deal along to the next phase because a message or notification got lost.
monday sales CRM also catalogs messages sent via email and while working in the OS, giving team members an archive to refer back to should they need it. That helps track statistics like how many cold emails or follow-ups were sent versus how many people moved to the next stage of the funnel.
You can also track other stats like how long leads are in the pipeline, how many make it to the end, and so much more — all of which lends itself to a performance-based commission structure.
How do I structure a sales commission plan?
How your commission plan is structured will depend on your business resources and goals, and there’s no one right or wrong way to do it. Usually, commission plans are based on a mix of base salary and commission received from sales — say 70% salary and 30% commission. Some plans pay team members solely on commission, but that’s not recommended.
What are the four types of commission plans?
The four most commonly used commission plan structures are:
- Gross profit: A percentage of the gross profit from a sale is awarded as a commission
- Sales revenue commission: Commission amount is a percentage of the total sales revenue
- Placement fee: You receive a set commission fee per sale, say $10 per unit sold
- Performance-based: The more you sell, the higher commission you get
Build and monitor a commission plan that motivates
A study by the Boston Consulting Group showed, among many other things, that employees who feel appreciated at work stay with their company longer than ones that don’t — a competitive commission plan can be make or break for this.
monday sales CRM provides the tools to supplement any commission plan, allowing you to track productivity, facilitate communication, monitor benchmarks, and get a high-level dashboard view of your entire team. To find out more about what monday sales CRM can do, check out the monday sales CRM features page or schedule a free trial.