Companies vary significantly on the structure of their sales organizations depending on their business model.  Understanding the business model is critical to developing sales compensation plans that will drive the goals of the company and excite the entire sales organization to meet or exceed corporate financial targets. 

But keep in mind that sales compensation is probably the most important compensation plan in the company. It needs to be clear in its components and transparent in its implementation. Every company should have a sales compensation governance process for developing and managing the sales compensation plan. (See Best Practice #5.)

In constructing a sales compensation plan, begin by determining its key elements. Always include these four components:

  1. Base salary
  2. Commission
  3. Bonus
  4. Sales incentives

Then, make sure it accomplishes the following:

  • It motivates everyone.
  • It sells the products or services you've developed, marketed and can deliver.
  • It is clear and easy to calculate, track and pay out.
  • It ties directly to corporate financial targets.

You also have to consider the types of sales distribution available to your company. There are different sales organizational structures you can use to maximize market penetration.

These first two groups will need a compensation plan and they should vary in some aspects: 

  • Direct sales group and field and national sales management, with a major focus on new customers.
  • Inside sales groups and management, with a focus on existing customers, targeting renewals, upgrade sales and customer satisfaction.

These next two groups reach markets where it would be too expensive to have a direct sales force, but a manager is needed to give support and direction:

  • VARs, or value added resellers, and regional dealers, which can target markets that may be too costly for you to cover with a direct sales group. A manager will be needed to drive and monitor their efforts.
  • Corporate partners, which sell your product or service to supplement their product or service. The manager for VARs and regional dealers can also oversee corporate partner relationships.