Together with Varicent, we have collected the most important terms and concepts that will help you understand the different components of the sales process and their meanings.
There are many ways to establish a compensation plan for sales representative in a particular company. However, there are some basic elements that should be included in any plan. Those are:
1. Base pay – salary of hourly job of employee, paid independently of the financial results
2. Incentive pay rule – definition of all components and formulas of commission
3. Benefits – additional non-financial profits provided by the company (e.g. insurance, company vehicle, gym membership, etc.)
4. Time off – includes not only vacation, but maternal/paternal leave or sick leave
Depending on the percentage achieved by the financial target, this is the range which determines the amount used to calculate the commission. Levels can be above or below the limit to encourage retailers to be more productive.
Special incentive pay component for sellers, provided for specific terms of the transaction. Such incentives emphasize the autonomy of the sales representative and control over the elements of the negotiations. Kicker can be provided for multi-year contracts, sales of additional products, or specific billing terms that are favorable to the company.
Management By Objective
MBOs are assumptions or sales goals, defined by the purpose of the activity or type of activity of an employee, not by amount of money delivered to the company.
This method is commonly used to motivate management or employees who are not dealing directly with sales. MBOs are used to reward activities beyond the sales cycle, often to reward skills building and development goals.
Sometimes called accelerator or decelerator. This is the number used to calculate the commission rate depending on the level of the sales target achieved. The multiplier would be used for performance above the limit (e.g. x1.2) or below the limit (e.g. x 0.65).
(Sales Performance Incentive Funds) are used to pay out one time incentive pay. This is usually specific, fixed amount, but sometimes achievement levels are also used. SPIFs are used to focus teams on short-term performance goals, typically related to specific parts of the sales process or key market segments.
The percentage of the employee’s annual base salary effective at the end of the year. If the company / department achieves certain business results and the employee achieves certain individual goals, the employee will receive the target bonus.
Terms and conditions
Legal language that defines the rules and procedures of the implementation of the incentive plan. This document can be created separately from the specific payout rules, but is almost always taken into account when introducing incentive pay packages.
A way of measuring a sales target or a set target for an individual or group. This is usually calculated as the number of closed transactions, the amount of money brought to the company from the transactions closed by a given seller, or the sales activity of the employee.
The time at which the achievement by the sales representative has reached the pre-set quota target. Usually this is a month or a quarter.
Total contract value
is the amount the customer has to pay during the contract. TCV is often used to measure amounts, for example, the representative is expected to close $ 200,000 TCV within a month.
Determining how and when the persons entitled to receive commission are paid out. While it is obvious, it must be emphasized: it must be precisely defined and respected.
Commission revocation. Typically triggered by unplanned changes in a signed contract or a violation of company policies and procedures.
This is the total amount of commission that sales representative can expect when they reach their sales goals. OTE includes both the base salary and the achievement of 100% commission.
Criteria for triggering commission payment. The payout rule is used to determine when a transaction qualifies for a commission payment. For example, a representative gets a commission only for signing a contract with a customer that lasts more than 12 months.
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