Would you risk it all for the one you loved? A romantic notion, and one question that you should never ask a consultant unless you are ready to hear the phrase “it depends.” Alas, as a consultant, but one who also doubles as a human being, I can confidently say there is a balance between stability and adventure to be had in any good relationship.
In the sales world, one of the most intimate relationships a sales rep will have is with their compensation plan, and getting the pay mix right is crucial. It’s like a romantic relationship that needs the right balance of stability and excitement to thrive. But what does the right balance look like?
Let’s start by looking at each kind of sales role and determining what is the optimal pay mix and the factors driving the outcome:
Sales Roles and Pay Mix Breakdowns
- Hunters (focused on acquiring new customers):
- Base Salary: 40-60%
- Variable Compensation: 40-60%
- Farmers (focused on managing and growing existing accounts):
- Base Salary: 60-80%
- Variable Compensation: 20-40%
- Sales Managers:
- Base Salary: 70-90%
- Variable Compensation: 10-30%
- Inside Sales Representatives:
- Base Salary: 60-70%
- Variable Compensation: 30-40%
- Outside (Field) Sales Representatives:
- Base Salary: 50-70%
- Variable Compensation: 30-50%
- Sales Engineers (often have technical expertise and support sales efforts):
- Base Salary: 70-85%
- Variable Compensation: 15-30%
Factors Influencing Sales Pay Mix
- Company Strategy: Aggressive growth strategies may favor higher variable compensation to incentivize new customer acquisition and revenue generation.
- Sales Cycle Length: Longer sales cycles often result in higher base salary to provide stability for the sales force.
- Market Competition: Highly competitive markets may require higher variable compensation to attract and retain top talent.
- Role and Responsibility: Roles with greater responsibility and influence on revenue generation typically have a higher proportion of variable compensation.
- Industry Standards: Different industries have different norms for sales compensation. For instance, tech sales roles might have higher variable components compared to traditional manufacturing sales roles.
Three Key Takeaways for Sales Pay Mix Optimization
- Motivation and Performance: A well-balanced pay mix motivates salespeople to perform their best. If the mix is skewed too heavily towards the base salary, salespeople might not be incentivized enough to push for higher sales. Conversely, if too much of the compensation is variable, it might create undue pressure and reduce job satisfaction.
- Talent Attraction and Retention: The right pay mix helps attract top talent and retain them. Sales professionals often compare compensation packages, and an unappealing mix can drive them to competitors.
- Alignment with Company Goals: A carefully designed pay mix aligns the efforts of the sales team with the company’s strategic objectives, ensuring that both individual and organizational goals are met.
This article is part three of a monthly series on sales compensation planning and is brought to you by Alvarez & Marsal, a Talentfoot Executive Search strategic partner. For more information about how we can help you recruit sales talent and build an attractive compensation strategy and plan, please contact us here.
