Pay mix is a key component in motivating and retaining your sales team. However, you must be aware of the different responsibilities within each team and, depending on this, set up a compensation plan for employees.
Generally speaking it’s basis + commission. Next step is to decide what is the amount of this commission, i.e. the ratio of basic salary to any commission which the employee earns on the basis of the sales On-Target Earnings (OTE). For example, 60/40 pay means that 60% of OTE compensation is fixed base salary, and 40% of OTE compensation is Target Incentive (TI). A more aggressive pay mix formula tends to be 50/50 or 60/40, where base salary is quite low, but at the same time, commission that the employee earned is quite high. At the same time 80/20 or 90/10 models are less aggressive. While the term “mixed pay” doesn’t sound complicated, the way how you determine mixed pay policy for each sales role shouldn’t look like hide and seek. Setting proper salary and commissions for employees may be tricky. Employer have to find balance between reaching or exceeding the team’s limit and, at the same time, maintain satisfaction and motivation of sales representatives.
There are a number of factors that go into your mixed pay analysis, all of which directly contribute to how aggressive your ratio should be. These elements include team members role, type of sales every employee is tasked with; type of structure that will motivate employees to sell; the length of the sales cycle; transaction size; customer type and other components.
To get started well, it’s important to remember that setting up the payroll should be based on understanding how your proportions will dictate the way your employees work and act.
The amounts you set will greatly impact how your team goes about their business. It’s important to review all the salary mix options before making any decisions.
For example:
0/100 – This compensation mix means no base salary. All employee will earn is the commission after closing the transaction.
It also means your team works under enormous stress and takes on a lot of obligations. Under these circumstances, managing stress becomes the most important issue an extremely difficult task. Also weekly payments may be required.
50/50 – This compensation mix is often a good starting point. It allows companies to influence the employee’s performance while providing sufficient protection for the sales representatives of their part of the fixed salary.
90/10 – On this end of the spectrum there is little motivation and good base salary. This is often the solution for administration employees, and a small part of the variable salary helps them connect with the team and it’s success.
How do you select the optimal mixed pay?
The factors mentioned above should easily guide you to make the best decision, but one key question remains: how others in your industry do this? How are other companies in your local area compensating their employees? How do similar-sized companies paying their representatives?
Benchmarking is the answer you’ve been looking for. It gives you the necessary insight into how other companies are constructing their mixed pay policies. Once you’re able to compare them with yours, you’ll have a lot more confidence when it comes time to make decision on your compensation strategy. With a sales compensation data benchmarking tool, you’ll obtain insight into the levels at which other companies are setting their salaries, what percentage of representatives are making their quotas, and average sales mixed pay within their organizations.
Generally speaking, jobs with the most influence on the purchasing decision should have a more aggressive mixed pay. In other words, when you think of “mixed pay” think of persuasion – and consider just how every employee affects customer into purchase.
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Task range:
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No role in the team has a greater impact on activities than Account Executive, as it is their responsibility to close the deal. Their mixed pay should reflect this and should be aggressive enough to encourage them to take and to seek new business opportunities. Typically, benchmarking among Xactly customers means Account Executive hat TI of 50/50 or 60/40. The percentage of pay at risk also depends on other factors that make your product harder or easier to sell. For example, a well-established brand is easier to sell than a lesser-known or totally new player. In this case, the ratio for representatives working with a well-known company may be less aggressive than the pay mix of those working with new ones. |
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Task range: – generating potential leads; |
The Sales Development Representative plays a key role in the sales process, providing sales opportunities, but has less impact on the end result and therefore their pay should be less aggressive. |
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Responsibilities: * analyzing the market and competitors’ offers; |
The Sales Specialist falls in the middle of the Account Executive and the Sales Development Representative. They aren’t the ones who closes the deal, but they presents product in front of a client, so, their activities are closely tied to persuasion. So, their mixed pay should be less aggressive than the Account Executive, but more than the Sales Development Representative. |
| Responsibilities:
– improves customer retention; |
Employee in this position works with existing customer already acquired and primarily cares about his or her satisfaction (customer’s well-being) and further sales (company’s well-being). The Customer Success Representatives role isn’t as risky as Account Executive’s one, who is tasked with bringing in new business in order to get paid. So, the Customer Success Representative should have a less aggressive mixed pay formula. |
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Responsibilities: – preparation and analysis of reports and market forecasts; |
The Sales Manager main responsibility is the sales team. One of his tasks is to coach the team and encourage people to works smart and hard. They indirectly play a part in the persuasion process, so a manager’s mixed pay is typically less aggressive than the representatives who are subjected to them. |
In addition, each job position may have more or less responsibilities depending on the company, for example, the specific nature of the company of its size.
In summary, each role in your team must be very well thought out. The commission plan for the sales department you want to implement and the ratio of base salary to commission for your employees must be even more thoughtful.
This article was created by our partner, Xactly Corporation and published with their approval.
Xactly is leading the way in Sales Performance Management, enabling businesses to unleash their true Sales Power. Check for more information: https://www.xactlycorp.com
