In sales, money does indeed make the world go around. But for all the money sales reps secure from leads they create and nurture, how much do they themselves need in order to be incentivized to perform at the highest level day in and day out?
That’s what sales compensation is all about - paying sales reps what they deserve, and figuring out the fairest way to give them a slice of the pie.
Each company will have its own views on the value of its sales department, but generally speaking, without sales reps you don’t have a business. They’re often the backbone of a company, particularly in its infancy, as they drive prospects who may wonder if your product is the right solution to their problem over the line.
What is sales compensation?
Sales compensation, in simple terms, refers to how a company pays its sales reps. As such, it encompasses everything from base salaries to commissions and bonuses or incentive pay schemes.
To determine sales compensation, it’s common to draw up a sales compensation plan which outlines the payment structure for sales reps including any additional information regarding incentive pay, bonuses, and commissions.
After the plan is put into place, sales compensation then becomes about figuring out the best way to execute the (perhaps complicated) payment structure.
How can you pay sales reps according to their performance from one day to the next and from sale to sale?
A usage-based pricing model dictates that you pay sales reps according to how much a customer interacts with the digital product you offer. In this instance, to pay commissions, you would need to know how to calculate pay for sales reps if usage is low for the first month(s).
You would also need to figure out what compensation would look like over a 12-month period, based on whether usage increases or stays the same.
You also need to ask yourself how you can motivate your sales reps to drive customer engagement with the product over a prolonged period, and help customers overcome any obstacles they may encounter.
Then there’s the question of how often you review the compensation scheme.
Perhaps you find that your sales reps aren’t performing as expected, and you decide that the best way to get the most out of them is to incentivize them more with a month-to-month scheme.
Implementing sales compensation schemes can be challenging, which is why many companies choose to adopt sales compensation software. This software handles the heavy lifting and can follow through on your plan to track and deliver payment to every sales rep in a timely fashion.
The software automates the compensation scheme you have in place for your sales reps’ commissions. The way you pay your sales reps will depend on how you price your product or services to customers.
Why is it important?
For many working in sales, money fuels performance, so it’s important for companies to offer competitive pay and reward every sale.
Without a clear plan and system in place for structuring and delivering fair sales compensation, you run the risk of failing to pay sales reps according to their performance. It’s very challenging to offer fair sales compensation that factors in everything we’ve outlined without creating a plan and designing a method for implementing it successfully.
Sales compensation software helps you deliver on your payment promises and plan, so you can rest assured that your sales reps will be well-motivated and well-compensated for their efforts.
However, when it comes to picking the right sales comp SaaS solution for your business, there are several factors to consider. The first one is the pricing model that works best for you.
How pricing models impact the compensation structure
There are two main pricing models for SaaS solutions that influence and inform sales compensation: fixed subscription and consumption-based. Here’s an overview of each and a rundown of the primary pros and cons:
With a fixed subscription pricing model, every customer that uses the software will pay a flat monthly or yearly fee. This model can include tiers, for example a tier with limited features and a tier with all features, and these tiers can have different prices, but they will all be flat recurring rates.
The Netflix pricing model is an example of subscription pricing:
This pricing model is not flexible, but the benefit for the company is that it makes it easy to estimate and maintain monthly recurring revenue (MRR) and annual recurring revenue (ARR).
It also makes sales compensation straightforward: you can pay for each new subscriber a sales rep secures and also include an incentive pay model for keeping them subscribed.
Consumption-based or usage-based pricing quickly emerged as a viable pricing model for sales compensation, offering an alternative to the traditional subscription model.
This pricing model adapts to the customer’s consumption. For example, if a customer doesn’t use the software often, they won’t pay much. On the other hand, if they use the software features a lot, they’ll pay more.
As such, it’s an attractive proposition for both parties, as companies can invite more customers since it’s a risk-free investment and customers can opt in without going all in.
Snowflake, the cloud computing leader, was a pioneer: they switched to a full consumption-based pricing in 2018, making it a competitive advantage, as described below.
This pricing structure allows customers to truly get to grips with the software on their own terms, and in their own time. But what does it mean for sales compensation?
It’s certainly more challenging, but offers new opportunities. For instance, you might incentivize your sales reps to discover ways of encouraging their customers to use all the features. If they increase customer usage, then they will qualify for a commission or bonus.
This also opens a new range of internal questions: if a customer’s usage increases, is it the impact of the sales rep’s work, or that of the customer success and onboarding team? Probably a bit of both so the incentive system and communication around it need to reflect all contributions.
Subscription-based and usage-based pricing are the two main pricing structures. However, many pricing grids are hybrid. Mailchimp for instance: the customer needs to choose a subscription plan based on the features they want to access and usage is billed based on the number of contacts.
As a result, increasingly popular usage-based or hybrid pricing structures contribute to adding a much higher level of complexity in the sales compensation models. Therefore, sales compensation software becomes all the more appealing to address this growing complexity. At some point, a spreadsheet just doesn’t cut it.
How to choose your sales compensation software
So with the various pricing models and features, what factors should you consider when picking the right sales compensation software for your business?
One universal truth when it comes to picking sales compensation software is that its usefulness for your business will be wholly down to the compensation scheme it follows. As such, if the pay scheme offered by the software doesn’t incentivize more sales, drive revenue growth, or help you address key customer pain points then it’s unlikely to produce the desired results.
Integration with other software solutions
With software for just about every business process these days, integration is important for consolidating data and processing it quickly. You may have a CRM for customer-facing interactions, billing software for processing payments, and a CPQ for nurturing leads and securing sales.
As such, it’s worth finding sales compensation software that integrates with your existing software solutions, and ideally reconciles several data sources, and keeps them updated “near real-time”.
This is especially true for billing software, since you want your sales reps to be able to see at a glance how much they should earn for the current week/month, based on how much customers are being billed.
For sales compensation software to work as intended, there’s a degree of transparency that’s required. On a basic level, sales reps need to know how they’ll be compensated to feel motivated, while those in charge of distributing the commissions need to calculate individual payments accurately.
Data visibility also underpins any consumption-based pricing model, since without it, it’s impossible to know what the customers’ consumption is. When you have access to this data, it becomes easier to calculate and distribute sales commissions accordingly.
One of the primary benefits of any software solution is the automation it provides for tasks that would otherwise require manual input. Sales compensation software is no exception.
The sales process is rife with opportunities for time-saving shortcuts. Rubber stamping payouts, for example, shouldn’t take more than a few seconds. With software, you can approve commissions almost instantly in a matter of clicks, removing this bottleneck from the pipeline.
Documents and contracts can be signed quickly too with workflow automation. Rather than engaging in tedious, time-consuming back-and-forth emails in which one party adds a signature then sends it back, you can use sales compensation software to condense the process.
Commission payments won’t always go down smoothly, though. From time to time, sales reps will take issue with the payout, in which case, you need a quick-reply feature to speed up the inquiry process. Some sales compensation software will allow you to instantly draw up an inquiry, related to a specific payout, so the person in charge of paying commissions can address it promptly.
For example, does the software allow you to introduce any incentive scheme, and automate it?
If your current pricing model isn’t compatible with the software, then it’s going to be a case of trying to fit round pegs in square holes: it just won’t work. For optimal efficiency, you want to find a solution that caters to your pricing model and allows you to automate key workflows.
Let’s take usage-based pricing as an example. If you pay your sales rep based on how customers engage with the software, you can pay them on a monthly basis to keep their morale and motivation levels high. Therefore, your sales compensation software should allow you to calculate and distribute commissions on a monthly basis.
Likewise, if you pay your sales reps on a different timescale, you will want to find software that meets your expectations.
The main sales compensation software
We will end this guide with a list of the best sales compensation software. The following tools can help you execute your sales compensation strategy effectively: