How to compensate sales reps

Keep the goals of your business in mind. Do you want to compensate on margin, on gross revenue, by product, or perhaps a combination? Here are some suggested guidelines:

• Be specific and simple. The more specific you are, the clearer your plan will be. Limit exceptions.
  
• Be fair. Organizations sometimes get a little stingy in their compensation plans. When individual sales plans are achieved, pay them for it.
  
• Balance risk and reward. The more risk the salesperson takes, the more the company will have to give in base guarantee, such as a salary or draw. The less risk the sales person has to take, the less the base pay.
  
• Add incentive. Commissions come in many forms: percentage of overall revenue, bonuses, strategic contests plus stock options. Either way, stay focused on the overall market penetration objectives of your company.
  
• Categorize compensation. Allocate sales rep compensation into three categories: salary, weekly or monthly commission, and quarterly or annual bonus. The key variable at your discretion is the bonus. A good rule of thumb is to allocate 10% of total compensation for bonus programs.