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1. What is a commission plan?
A commission plan is a commission pay structure designed to reward sales reps based on their performance. Unlike a fixed salary, this system offers sales reps the opportunity to earn more depending on the results they generate. The idea is to encourage them to increase their sales and meet or exceed their targets.
📊 The number to remember
According to a Glassdoor study, sales reps with incentives increase their performance by an average of 44%.
The basic principle is simple: part of the remuneration is linked to the sales or margin achieved, with a percentage allocated according to the results obtained.
"100% of a company's growth is driven by its sales force, and the commission plans determine their sales behavior, and therefore their performance, and the extent to which they meet their targets".
Vladimir Ionesco, Director of Global Sales Performance at Doctolib
Commission plans can take a variety of forms, ranging from a simple percentage of sales achieved to more complex structures, including performance tiers, gross margin commissions, or even exceptional bonuses for outstanding achievements. The aim remains to link pay and performance to encourage a proactive, results-driven approach within the sales reps team.
"A good commission plan is a compass that guides the efforts of sales reps while aligning their priorities with those of the business."
Julie Bertin, sales reps specialist at Gartner
2. The objectives of a commission plan
A well-designed commission plan serves several key objectives that benefit both the sales reps and the company as a whole.
- Motivating and engaging sales reps: The main aim of a commission scheme is to reward sales reps directly for their results. This system encourages your sales reps to invest fully in their work, in the knowledge that their efforts will be rewarded with commissions linked to their performance. A McKinsey study has shown that companies with flexible pay systems achieve a 20% increase in sales.
- Aligning sales reps with the company's strategic priorities: A good commission plan should be designed to support the company's overall objectives. Whether you are looking to develop new markets, increase sales or retain existing customers, the commission plan should reflect these priorities and encourage actions that are aligned with these objectives.
- Ensuring fairness and transparency: A commission plan aims to establish a fair and transparent system that values real performance. By clarifying remuneration criteria, it enables each employee concerned to understand how his or her efforts are rewarded, thereby strengthening trust within the team.
- Ensuring the company's profitability: The commission plan contributes to profitability by ensuring that the commissions paid are directly linked to the results generated. This helps to control costs and maintain a sustainable remuneration structure. According to a Deloitte report, companies that have adopted optimized commission systems have reduced their wage costs by 15%.
In short, a commission plan serves to motivate, align, reward and retain sales reps, while contributing to the company's profitability and growth. It ensures fair and transparent management of commissions, reinforcing collective and individual performance.
3. How do you draw up a commission plan?
- Clarify your sales reps objectives: A good commission plan starts with clear, measurable objectives. Use SMART criteria to give your sales reps a clear direction and a direct incentive to improve their performance.
- Choosing the right commission structure: Ensure that the remuneration structure is aligned with your team's roles and sales cycles. This customization is essential to maintain a high level of motivation.
- Promote fairness and transparency: Commission criteria must be not only fair but also transparent. Clear management of remuneration avoids misunderstandings and builds trust within the team.
- Align the plan with strategic priorities: Your commission plan must support the company's priorities: increasing sales, building customer loyalty or conquering new markets.
- Simplify administration and ensure reliable calculations: Using tools like Qobra allows you to automate and simplify commission management. You gain efficiency while guaranteeing total transparency of commission calculations. According to a SalesTech Insights report, "Automating calculations can save up to 30% of administrative time per month".
- Be flexible and adjust regularly: A commission plan should not be set in stone. Adjust it regularly to take account of feedback from sales reps and changes in strategic priorities or market conditions.
"Qobra really helped us to gain the confidence of our teams because they could see their results on a daily basis. They had very clear visibility of the details of the calculations according to the Dashboard, but also of where they were at with their accelerators, for example. And that can motivate them to say to themselves "OK, if I do one more deal, that's going to potentially unlock the next accelerator for me”."
Aude Cadiot, Revenue Operations Lead at Spendesk
4. How do you choose the right commission model?
To define a commission structure, it is essential to choose the model that corresponds to your sector and your sales reps objectives.
Here are some common models that can be adapted to different situations:
Model commission plans for different sectors
1. 100% commission
This model pays sales reps exclusively commission on their sales, with no fixed salary. It is suitable for sectors where the products or services are of high value (e.g. real estate, luxury vehicles).
Advantages:
- Highly motivated sales reps.
- Increased profitability for the company, as costs are directly linked to sales.
Disadvantages:
- Risk of high turnover if sales are low.
- Financial instability for sales reps during slack periods.
2. Base salary + commission
This model combines a fixed salary with commission, offering a balance between financial security and performance incentives. It is suited to sectors with longer sales cycles, such as real estate.
Advantages:
- Financial security for sales reps.
- Incentive to exceed targets through commissions.
Disadvantages:
- Management complexity to ensure fairness.
- Some sales reps may be satisfied with their basic salary without trying to maximize their commission.
3. Step-by-step commission
The commission rate increases as sales targets are met. This model is effective in sectors with short sales cycles, such as retail.
Advantages:
- Encourages you to exceed your sales targets.
- Flexibility to adjust commission rates in line with market performance.
Disadvantages:
- Can create income disparities, affecting team cohesion.
- Favours quantity of sales rather than quality of sales.
4. Commission on gross margin
Rather than being based on sales, the commission rate is applied to the margin generated. This model empowers sales reps by encouraging them to focus on sales profitability, not just volumes.
Advantages:
- Aligns sales reps' interests with the company's profitability.
- Encourages strategic sales, focusing on high-margin products.
Disadvantages:
- Complexity of calculation: Sales reps may find the system difficult to understand, especially if margins are not clearly communicated.
- Risk of neglect: Certain low-margin but strategically important products or services could be deprioritized.
5. Implement and manage the commission plan
You now have everything you need to choose the best commission-based remuneration model. However, a successful commission plan is not just based on figures or strict rules! It also relies on human management and appropriate follow-up. Here's a step-by-step setting up your future commission plan guide to :
Involve your teams right from the design stage
Your sales reps are your best allies when it comes to defining achievable objectives and relevant indicators. By involving them in the process, you can maximize their commitment to the plan.
Co-create objectives: A plan drawn up with your teams will be seen as fairer and more motivating.
Communicate and provide training on the new plan
Once the plan has been finalized, don't just announce it. Explain it.
Total transparency: Detail the rules, calculation methods, targets and payment schedule.
Monitor and adjust regularly
A commission plan is like a sales rep strategy: it needs to be constantly monitored, analyzed and optimized.
Adjust according to the situation: Revalue commission rates, introduce occasional challenges, or readjust targets to reflect reality.
Simplify your life with a monitoring tool
Keeping track of commissions in Excel can quickly become a headache. To avoid errors, save time and maintain transparency, adopt a tool like Qobra. Automation, accuracy and reliability are just a click away.
"Excel was taking up an enormous amount of our time, both in terms of retrieving the various pieces of information (quotas, team changes, etc.) and readjusting all these elements, updating the Excel temple, having it validated by the manager and then communicating it to the teams".
Aude Cadiot, Revenue Operations Lead at Spendesk
FAQ
What is the difference between commission and target-based bonuses?
Commissions are directly linked to sales rep performance, such as sales or margins achieved, with a fixed percentage. On the other hand, target-based bonuses reward the achievement of specific KPIs (new customers, customer loyalty, etc.) in the form of a lump sum.
Can a collective commission be set up?
Absolutely. A collective model can reinforce team spirit and encourage cooperation between your sales reps. For example, you can provide for additional commissions if the overall team objective is achieved, while retaining individual commissions.
Should commission be capped?
It depends on your philosophy and your priorities. Without a ceiling, you maximize motivation by letting your sales reps exploit their full performance potential. With a ceiling, you keep control of the wage bill and avoid excessive variations.
It's up to you to align your choice with your corporate culture and financial constraints.
How do I choose my commission software?
The right commission tool should be simple, configurable and secure. You can try out several solutions, and you should opt for those that automate complex tasks for maximum reliability.
What is the typical sales commission structure?
In general, sales reps combine a basic salary, to provide financial security, with a commission, performance-related commission based on sales or margin.
Some companies opt for 100% commission models, but this is a rarity!
What is a 70-30 compensation plan?
This model divides a sales rep's income into 70% fixed salary and 30% commission. It's an excellent compromise for combining security and motivation.
What is a 60-40 commission structure?
On a 60-40 model, 60% fixed salary and 40% commission, the split is slightly more performance-oriented.
