Attracting new talents and retaining existing employees are two highly crucial factors for a business. These factors not only ensure smooth and productive operations but also save expenses over the long term for a company. A lot of things can impact the sales force’s performance of a firm, but the most significant impact comes from the pay mix for sales force.
What Is Pay Mix for Sales Force?
In the sales force, the ratio between base salary and variable pay is known as pay mix. The sales reps may receive variable payments in the form of incentives and bonuses for achieving various short-term and long-term targets. The ratio between this variable pay and the base salary can be anywhere between 60:40 to 75:25, depending on company goals and employee skills and experience. A lot of different factors can impact this ratio, so the managers and the hiring team must be well aware of these decisive factors. The following are some of the most common factors that impact the sales force’s pay mix.
Factors That Impact Pay Mix for Sales Force
Different products require different levels of sales activities to close the deal. Therefore, the pay mix should be determined according to the type of product the salesperson will sell. A product that is established in the market may not require complex sales tactics. So, the salespersons involved in established products may not require a higher pay mix. However, a higher compensation would be essential in attracting talented salespersons for new product sales.
Salesperson Skills and Persuasion
The incentive plan design strategists must also take into consideration the skills and the amount of persuasion required to close deals with customers. Sales reps with desired higher levels of skills and persuasion techniques must be rewarded with higher compensation. Similarly, the sales operations professionals must also focus on the number of customers a salesperson is addressing and reward the top performers with higher incentives. These methods not only improve retention but also motivate other sales reps to perform better.
Sales targets play a key role in overall sales performance. It allows the incentive plan administrators to gauge sales activities and determine the contribution of every salesperson to overall sales. The compensation for employees who meet short-term and long-term targets must be higher compared to others to maintain a competitive atmosphere.
Sales Cycle Features
Various sales cycle features, such as sales cycle length, complexities, sales channels in use, etc., has a key impact on pay mix calculations. The top companies around the world use a simple strategy to determine the right incentives; the higher the complexities of the sales cycle, the higher the compensation. The involved salespersons require higher skill levels, so it is reasonable to pay a higher ratio of the pay mix.
One of the major factors that impact the pay mix of a company is the market condition and product performance. The managers need to constantly keep in touch with market conditions and design the package to remain competitive in the market. If the combination compensation plan isn’t up to the mark compared to your market competitors, there’s a great chance of losing skilled salespersons to competitors.
The decision-makers would also consider the customer type before determining the compensation plan for sales reps. One of the main focus points is the target customer base. The compensation for salespersons involved with acquiring new customers is higher than those dealing with the existing customer base. New customers bring more business and reach to a business, and therefore, the company must provide higher benefits to the sales reps involved.
Clearly, incentives management stakeholders have to analyze various factors to build an effective compensation plan for the sales force. Sub-optimal compensation plans can lead to major losses, and you may even lose experienced and high-performing sales reps. However, understanding the market and retaining talent aren’t the only fields to cover. The plan designers must also make sure that the compensation plan helps the business achieve its goals and objectives.
Objectives Of Sales Force Pay Mix
When determining the pay mix, companies focus on a wide range of characteristics. The objective is to build an attractive package that not only attracts talent and retains skilled employees but also meets company objectives. With an effective pay mix ratio, businesses typically look for,
Skilled Sales Force:
One of the primary objectives is to attract talented employees into the workforce. A well-planned compensation structure attracts and retains skilled salespersons by exhibiting growth opportunities and higher financial benefits. The plan also maintains a competitive working atmosphere that keeps employees engaged and interested in the long term.
Better Sales Force Control:
Along with employee retention and competitiveness, a company can use the pay mix to have better control over the sales force. The compensation structure allows compensation administrators to drive the sales force’s behaviour according to company requirements. The pay mix should be designed to align the interests of the salesforce with those of the company by linking the pay to the salesforce’s performance.
Businesses would also look for a flexible enough pay mix so that they can make amends according to changing market conditions and business objectives. The plan must not limit the company’s abilities but instead empower the managers to drive the operations as needed.
Sales reps often perform well in the short term, but in the long term, their motivation deteriorates and their performance drops. A well-planned pay mix is also focused on long-term performance. Managers used the compensation plan to maintain competitiveness and engagement among the sales force, driving long-term performance. The pay mix ideally should be designed to drive the desired behaviour among the salesforce, such as increased sales, customer satisfaction, and other performance metrics.
Budget And Sustenance:
One of the most important factors is financial responsibility. Pay mix is typically the difference between base salary and variable pay, so the organization has to pay these benefits for the long term, and the managers need to design the ratio in such a way that it suits the budget and long-term sustainability of the company.
So, there is no one-size-fits-all scenario when it comes to the pay mix. A vast variety of factors impact the pay mix, and therefore, managers have to determine a suitable plan according to their own industry and market statistics. For some businesses, a higher pay mix would be great, while some may need a low pay mix plan.
Here’s a quick comparison of the high pay mix vs low pay mix:
High Pay Mix
- Builds a motivated sales force with higher sensitivity of sales to the compensation plan
- Differentiates top performers from the rest
- Results in short-term results and increases chances of cheating
- Incentives may become the primary driving force for sales reps with limited control of the first line of manager
- It may impact the company culture and reputation
Low Pay Mix
- Better financial predictability for the company
- More desirable for mature products and commoditized markets
- Top performers may get demotivated
- Fewer rewards to impact salesperson’s behavior
- Hiring high-performance salespersons can become challenging
As you can see, both have their own benefits and limitations. So, companies need to have an optimal pay mix depending on several factors as explained during the course of this blog post. Ideally, organizations need a flexible structure that meets employee expectations and company objectives.
Pay Mix is a term that covers a vast area of sales, and therefore, it also has a major impact on overall sales performance. With intelligent decision-making, an optimal pay mix can help boost sales without massive risks and limited expenses. Therefore, the best option is to consult professionals and construct a customized pay mix structure that precisely meets your business objectives.