When you are managing a sales rep team, the compensation structure will determine which type of talent you should be hiring.
Yes, you want to attract the best sales reps, but you also want them to do the best job that they can. For example, if you are running a beauty business, you might give a bonus to employees that up-sell certain blow wave hair services.
The question is: are sale bonuses the way of getting the best sale representatives to your business? Is this the way to be rewarding the sales that your best sales reps make when they make the biggest sales? Should you be offering a commission or a bonus? Variable compensation or a fixed salary which is better for your business?
Let’s start by clearing up the basics.
Sales Bonus – what is it?
This is a monetary incentive that is given when the salesperson meets a goal (or even exceeds that goal). Sales bonus can be defined as a percentage of increasing revenues that is a dollar amount that is given when a sales rep brings in a particular amount of revenue for a certain period. For example, if a sales rep receives a sale bonus of $1000 once they have got to the $10,000 revenue mark for the time period.
You can structure an achievement around a bonus but not directly linked especially to revenue. Bonuses can be awarded on the number of units sold, how quickly customers go through the sales cycle. For a hairstylist, this might include implementing customer retention strategies.
When is the right time for a bonus to be used?
Well, it seems obvious that if there is a bigger sale there will be bigger rewards but that isn’t always the case. The business goals are taken into consideration and the role of the rep to determine whether it be a sale bonus or commission is not the right incentive.
It is good to use sales bonuses say when you have relatively slow growth. The bonuses can encourage the reps to spur growth by selling more, without the need for the company to pay until it is financially able. Your structure for the bonus might be offering a prize that is not paid until a particular amount is met.
Sales reps can be required to do more than close deals and bring on-board new customers. If the business wants to highlight its importance of supporting revenue from existing customers, there could be a bonus for increasing the lifetime of the customer by a certain length.
If the business wants to emphasize the importance of sustaining revenue from existing customers, there might be a bonus for increasing customer lifetime value by a certain length.
Commission or bonus – what’s the difference?
Commissions are calculated by a percentage of the overall sale value. It can be in the revenue being brought in or the volume of units that are sold.
The compensation that is based on the commission is good when the reps are expecting to reel in new business rather than continuing to maintain their existing accounts. Going with the more they sell the more money they will make.
When it comes to offering commissions instead of a bonus makes more sense when the company is growing fast, struggling to set clear, focused on increasing revenue and attainable sales quota.
It seems there is some difference of opinion when it comes to whether bonuses should be earnt for each sale. Some say yes they should if the sales rep has the talent to sell more and bring in more clients then they should be rewarded but then they tend to think that it just creates too much of a competitive realm of business and the sales rep should not just be trying to make sales in order to get a bonus but merely to do their job as a sales rep.