Three basic compensation plans are available to sales management: salary, commission, and combination (salary plus incentive) plans.

One approach is to calculate them as a percentage of gross sales, but there’s no one-size-fits-all rule for what that percentage should be. Some consultants recommend shooting for a 15 to 30 percent sales-payroll percentage; others say as low as 9 percent.

Depending on the compensation scheme, a salesperson may be paid sales commission based on a percentage of the amount of the sale, such as 3% of the total sales price, a standard commission on any sale such as $500 per sale over x sales in a week or month, or a team-based percentage of the total sales of the department …

Here are the four essential components to consider when designing your plan.

• 1) Salary.
• 2) Commission.
• 3) Bonuses.
• 4) Other Incentives.

A strong sales compensation model should be aligned with company goals, simple to understand and communicate, and give sales reps and managers target objectives to work toward. Ultimately, this will help your plan incentives drive your desired sales behaviors.

How to Create a Sales Compensation Plan For New Reps

1. Understand the Basic Requirements of a Good Sales Comp Plan.
2. Establish Role Levels.
3. Determine Total On-Target Earnings (OTE)
4. Decide Base Pay and Sales Commission Structure.
5. Set Targets.
6. Plan Compensation for Onboarding and Training.

A sales compensation plan is the individual plan for a sales representative within your sales organization, and it should be designed with specific concepts and components in mind, based on their role within the sales cycle, types of sales engagements, seniority, and more.

How to develop and implement a compensation plan

1. Create an outline.
2. Appoint a compensation manager.
3. Create a compensation philosophy.
4. Rank jobs and place them within a matrix.
5. Develop grades for seniority within each job classification.
6. Settle on salaries and hourly rates of pay.
7. Complete necessary policies.

It’s easy to calculate pay mix. On-target commission divided by OTE equals the percentage of your pay tied to the commission. Base salary divided by OTE equals the percentage tied to base salary. For instance, if your on-target earnings are $100,000 and your base pay is $54,000, your pay mix is 54/46.

Pay mix is the ratio of base salary to target incentives that make up On-Target Earnings (OTE). For example, a 60/40 pay mix means that 60% of OTE compensation is fixed base salary, and 40% of OTE compensation is Target Incentive (TI), or variable pay.

For SEs, the most common payment structure is 80/20. This means 80% is a base salary and it is a guaranteed salary. So if you are a SE and your sales team doesn’t sell a single dime’s worth of product, you would end up making this 80%.

Commission-Earning Services Salons often give stylists commission for both styling services and hair-care product sales. Some salons have different commission rates for salon services and product sales. As with styling services, commission from product sales may work on a set rate or a graduated scale.

In its simplest form, Team-Based Pay is an Hourly Rate + Team Bonus compensation method. It is pay based on an employee’s overall performance that extends far beyond “individual revenue” to include skill level, behaviors and strengths.