When it comes to sales, there’s one thing that everyone can agree on: the success of a sales team depends on its ability to close deals. Sales leaders must incentivize their teams to be top performers who are consistently closing deals and driving revenue. While a strong base salary is important for attracting top talent, it’s variable compensation that really motivates salespeople to perform at their best.
Why it Works
But what exactly is variable compensation, and why is it so effective? Simply put, it’s a pay structure that rewards salespeople for meeting or exceeding certain targets. This can include commissions, bonuses, and other performance-based incentives.
The advantages of a variable compensation structure are numerous. For one, it aligns the goals of the sales team with those of the company. When salespeople are rewarded for meeting certain targets, they have a vested interest in ensuring that the company meets its own goals. In addition, variable compensation encourages salespeople to continuously improve their performance. Rather than simply hitting a set quota each month, salespeople are motivated to go above and beyond in order to earn more money. This can lead to a more productive and motivated sales team overall.
How to Do it Right
But variable compensation isn’t a one-size-fits-all solution. In order for it to be effective, companies must carefully design their plans and set realistic targets. If targets are set too high, salespeople may become demotivated and lose confidence in their ability to meet them. On the other hand, if targets are set too low, the incentive for salespeople to outperform may be lost. Warning: Do not over complicate your commission plan—the KISS principle (Keep It Simple Stupid) will allow you and your team to easily track success.
A common approach to variable compensation is the “base plus commission” model, in which salespeople receive a fixed salary plus a commission on each sale they make. This allows salespeople to earn more money as their performance improves, while still providing a steady income.
According to a survey by the National Sales Executive Association, companies with a strong variable compensation program saw a 25% increase in overall sales performance. In addition, a study by the Sales Management Association found that salespeople who participated in variable compensation plans had a 22% higher retention rate than those who did not.
But don’t just take our word for it – successful business leaders have recognized the importance of variable compensation as well. As Salesforce CEO Marc Benioff puts it, “In the world of sales, money talks. If you want to motivate your sales team, give them the opportunity to increase their earnings through commissions and bonuses.”
Variable compensation is a crucial tool for motivating and retaining top sales talent. By aligning the goals of the sales team with those of the company and providing incentives for continuous improvement, companies can drive sales performance and build a strong, successful sales force that closes deals consistently.