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Design an Effective Inside Sales Commission Plan

February 21, 2013

When designing a commission plan for your inside sales team it’s important to focus on two main questions.

1. Will the plan help the organization achieve its sales/growth goals?

2. Will the plan engage the team to exceed performance expectations?

 

Your plan must align with the goals of the organization.  In many cases that revolves around sales conversion rates, but could also include total revenue, revenue per customer, or units sold.  An effective commission plan will drive both revenue and customer acquisition (units).  As we all know, acquiring a customer is never cheap.  That said, a conversion rate element in the commission structure will drive agent behavior to make the most of each call/lead.  The revenue side of the equation will allow the organization to determine a fair compensation rate for each unit sold.  The goal is to make the plan self funding by reducing customer acquisition cost and/or increasing revenue.  Effective plans that I’ve used in the past use conversion rate as the metric for determining the amount paid out on each unit sold.  If driving revenue is more important you could use conversion rate to determine the share of total revenue generated to payout to the agent.  As an example, 10% conversion rate would equal a 1% share of the revenue the agent generated.

Some organizations decide on more of a bonus structure vs. commission plan.  Bonus structures allocate a certain dollar bonus based on the level of achievement in regards to the driving metric.  Commission plans are usually not capped and payout on each unit sold.  For that reason I find commission plans more effective in engaging agents and driving performance.  Structured properly an inside sales commission plan should be engaging to agents, drive performance, be self-funding to the organization, and reduce agent turnover.

 

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