Startups struggle to gain momentum and scale, and one of the most important levers for growth and expansion is team compensation. The founding team is usually in it for the long haul, and stock, ownership, or shares are a significant part of their long-term remuneration package.
Early-stage founders who are bootstrapping may receive no monetary compensation or a small income to cover personal and living expenses, which will eventually increase as profitability and investment grow.
For in-demand high-performing individuals, asking them to accept pay below-market in return for ownership may not be a practical choice when a business begins to hire. Having a sales incentive structure as a component of remuneration when onboarding team members such as sales and business development reps can help promote traction and growth.
Designing A Sales Incentive Structure for Startups
Sales incentives are one of the most complicated aspects of sales remuneration. And they typically have a large impact on corporate performance. Creating an effective sales incentive structure for your startup necessitates. A delicate balance of business strategy, competitive pay levels, and affordability.
You can start the design process once your startup has created a design team for the plan. Designing sales incentive plans necessitates a number of considerations. That will determine how plans are handled and how salespeople are compensated. This will entail looking into the five elements listed below.
Once a plan has been established, both your sales and finance teams should thoroughly test it to discover any difficulties or gaps that may arise in your firm.
Types of Incentives
Incentives are powerful tools for attracting and keeping top personnel. Incentives could include:
Bonuses: It can be set up to directly drive and support the company’s needs, and are typically based on KPIs like profitability, revenue, or project or milestone completion.
Profit-Sharing: A payment based on the company’s profits that are usually given out once a year. It’s generally a pre-determined percentage that has been widely communicated, and it’s usually related to KPIs.
Stock Options: In place of higher pay, stock options may be provided to key personnel, especially if the company is not yet successful and/or cash flow is tight. Individuals can generally exercise stock options at any time throughout the agreed-upon term, subject to any vesting plan.
Commissions are a common strategy to reward salespeople for securing a product or service sale. The goal is to provide a strong motivation for the individual to work hard to help the company achieve its goals.
Payment may be made on a commission-only basis, with no base pay, or on a salary-plus-commission basis. On a straight commission basis, a salesman might earn 10% of the sale price as commission. It could be based on a percentage full-year quota achievement that is paid pro-rata in a given quarter of the year in a base/salary combination.
In general, commission structures are based on achieving particular targets or quotas that management and the employee have already agreed on. These quotas or objectives are usually based on revenue, unit sales, or some other volume-based criterion.
Must Read: How to Incentivize Distributors?
Rules for Creating a Sales Incentive Plan
Keep it Simple: Don’t make the sales incentive plan overly complicated by including too many priorities. After you’ve finished putting the plan together. Talk to members of your team and have them describe it to you so that everyone’s responsibilities and rights are apparent.
It Must Be Both Attainable and Demanding: You don’t want a selling incentive plan that no one can complete. But you also don’t want one that is too simple to complete.
Unchangeable: Once the sales incentive plan has been widely publicized, don’t make any changes. Your employees should understand what is expected of them. And what they are entitled to if they meet these objectives. If the goals are changed, the structure may become muddled. It’s critical to consider variables and contingencies. How would it affect their individual incentive plans. If one sales representative leaves and a new representative takes over the territory?
Communicate: Before the relevant period, it’s critical to communicate the sales incentive strategy. The sooner the team understands what they must perform and how they will be reimbursed, the better.
Keep it Simple: It should be simple to measure and understand how well the sales representative is performing. Consider a new measurement if the data to measure isn’t readily available. Or if the sales representative doesn’t have a simple way to know how they’re doing at any particular time. Choosing metrics that are simple and readily available improves the plan’s clarity.
As a startup, your compensation strategy should be tailored to your specific business needs. By motivating your employees to bring in revenue and cash, a sales incentive plan can help you scale and flourish.
Taking the effort to build and implement an aligned sales incentive structure will not only help you achieve your goals but will also help you attract and retain top sales personnel.