In this competitive world, everyone was to earn better and live an abundant life. No wonder everybody is determined to work hard. But, when it comes to sales representatives – their determination is a little stronger as they have to be extra creative to ensure the customer purchases the product they’re selling.
Every company that renders goods and services has a dedicated sales team with highly skilled individuals who would go to any extent to get the deal closed. Their main motive to create as many sales as possible, not just to generate revenue for the company but also to get extra incentives in their bank account.
One of the imperative ways that the firms encourage their sales teams is by providing them with better compensation plans and incentives. It boosts the interest of the sales rep, and he would want to work more to earn more. This kind of intention that benefits both parties is called sales compensation.
What is sales compensation, and why is it important?
Sales compensation is a specific amount given to the salesperson for making a said number of deals. It varies from company to company and, sales compensation includes base salary, commission, and additional incentives. It is a reward management system wherein the person with the highest number of sales gets rewarded.
Different firms use different types of sales commissions that fit as per their visions and missions. The people devising the plan should be aware of all kinds available in the market – what their budget is and how their competitors are doing. Considering the intricacies of their company’s interests and growth will aid them in coming up with a plan that lures the representatives to give their best.
A sales compensation plan helps the firms to determine how their team behaves in the competitive environment. And, it ensures that you have predictable and standardized outcomes than losing control. Sales compensation also serves you in enhancing your sales representatives’ performance.
By placing a substantial compensation plan, you are not only establishing standards for your employees, but you’re giving them set goals to achieve. That makes it easier for the employees to concentrate rather than hovering over other aspects aimlessly. Here are some types of effective compensation plans that can guide you in generating a better working environment.
Salary Compensation – The monthly payment you make to your representative regardless of the number of sales he/she does. The salary is predetermined before the employee joins the firm and is given the same amount every month without any bonus, incentives, or commissions. Usually, this plan is not appropriated by all the companies as they do not drive the employees to bring more revenue.
Commission Compensation – It is a determined amount you pay to the employee for making a set number of sales. In simple terms, if the sales representative makes huge sales then he would get a higher commission and if he would make fewer sales then he would get the lower commission. This plan helps you in filtering the poor performers and keeping only qualitative ones. The commission compensation plan motivates the sales representatives to earn as much as they can.
Base salary plus commission – This is the most common plan used by most sales teams of all the industries. Here the reps get a base salary and a commission or a bonus for every additional sale they make. It is a win-win situation for both parties as the employee gets the salary regardless of how much sales they make, and the employer Gets to have a highly motivated and determined salesperson. And, the employer can assign menial tasks to finish such as training and maintaining records as he pays a monthly salary.
Absolute commission – This plan has a fixed amount, like a percentage of sales or a particular amount for a unit of sale. The employer pays the sales representative as per the percentage of sales made or the number of units he/she has sold. However, There can be discrepancies between the team members as a highly motivated individual might supersede the quota while his peers struggle through the fickle market.
Relative Commission – This might sound quite similar to absolute commission. However, there is a slight difference. Here in Relative commission, the reps get commission on a proportionate basis. For example, If the representative works up to 100 pieces he/she gets paid ₹ 10 per unit. If he/she makes above 100 pieces they will be paid ₹ 12 per unit and so on. The relative commission has a set number of a target to achieve.
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