A well-designed sales compensation plan can motivate sales reps to perform at their highest level, while a poorly designed plan can have the opposite effect. Read all about what a sales compensation benchmark is and 11 sales compensation benchmarks worth including in your sales plan.
Sales compensation is a crucial element of any sales organization's success.
According to Gartner, 50% of sales leaders agree that the COVID-19 pandemic exposed glaring vulnerabilities in their sales compensation plan.
In today's dynamic market, every sales plan carries significant risk.
This is where a robust sales compensation plan with the right benchmarks can help. The sales leadership can then make informed decisions and stay competitive as well as aligned with industry standards.
In this article, I’ll cover what are sales compensation benchmarks along with 11 benchmarks that you should include in your compensation plan. I’ll also highlight the benefits of using them and a few relevant tips to improve them.
Let’s get started.
What Are Sales Compensation Benchmarks?
Sales compensation benchmarks are metrics that provide organizations with insights into the typical compensation structures used in their industry.
These benchmarks typically include data on:
- Base salaries.
- Commissions
- Bonuses and other forms of compensation.
- Industry standards.
- Competitor analysis, and more.
They may also provide information on sales quotas, performance metrics, and other factors that influence sales compensation.
Sales compensation benchmarks can be broken down by industry, company size, geography, and other factors. For example, a benchmark for sales compensation in the software industry may differ significantly from a benchmark for sales compensation in the healthcare industry.
Likewise, a benchmark for a small startup may differ from a benchmark for a large multinational corporation.
In terms of compilation, sales compensation benchmarks can be compiled by industry associations, consulting firms, or other organizations that specialize in sales compensation. Companies can also gather benchmark data through surveys or by analyzing publicly available information on compensation practices in their industry.
11 Sales Compensation Benchmarks to Use in 2023
Here are 11 key benchmarks that you should include in your compensation plan:
1. Base Salary
It is the fixed amount of compensation that a sales representative receives for their work. The base salary for sales professionals is expected to continue to increase in 2023 as the job market becomes increasingly competitive.
The average base salary for a sales representative is expected to be around $52,473 a year as per Glassdoor. This number can vary depending on the industry and location.
2. Commission Rates
These refer to the percentage of the sales revenue that the sales representative is eligible to receive as compensation. Commission rates for sales reps are likely to remain steady or slightly increase in 2023.
As per Indeed, the average commission rate is around 5% to 30% of the total sales volume, but this can vary widely depending on the product or service being sold.
3. Bonus Programs
Many companies offer bonus programs to incentivize sales reps to exceed their targets.
The average bonus payout is expected to be around 10% to 15% of the base salary, but some companies may offer more or less.
4. Performance Metrics
Sales compensation packages are typically tied to specific performance metrics such as the revenue generated, number of new customers acquired, or product mix sold. These metrics may vary depending on the industry and company goals.
Some examples of performance metrics include:
- Sales quota: The minimum level of sales that a sales representative is expected to achieve in order to receive full compensation.
- Accelerator rate: The rate at which a sales representative's commission rate increases as they exceed their sales quota.
- Customer acquisition cost: The cost associated with acquiring new customers. It can impact the amount of commission that a sales representative earns.
- Product mix: Refers to the proportion of sales that are generated by different products, which can impact the commission rate for each sale.
5. Territory Size
This refers to the geographic area that a sales representative is responsible for selling into, which can impact their ability to hit their sales quota.
The size of a sales territory can have a significant impact on compensation. Larger territories may come with higher sales quotas, which can lead to higher commissions and bonuses.
Here’s a quick guide on territory planning.
6. Sales Cycle Length
This refers to the amount of time it takes for a sales representative to close a sale, which can impact their ability to hit their sales quota and earn full compensation.
Sales reps selling products with longer sales cycles may receive higher compensation to reflect the additional time and effort required to close deals.
7. Tenure
Sales reps with more experience may be eligible for higher base salaries, commissions, and bonuses. Companies may also offer additional benefits such as stock options or profit sharing to reward long-term sales success.
8. Industry
This includes the average compensation levels for sales representatives in the same industry. This helps ensure that an organization's compensation plans are competitive and attractive to top talent.
The industry in which a sales professional works can also impact compensation. For example, sales reps in the software or technology industry may receive higher compensation than those in retail or hospitality.
9. Location
The cost of living and demand for sales professionals in a particular location can also impact compensation. Sales reps in high-cost-of-living areas may receive higher base salaries to offset the higher cost of living.
10. Company Culture
Finally, a company's culture and values can impact sales compensation. Some companies may place a greater emphasis on teamwork and collaboration, while others may prioritize individual performance and competition. This can influence the types of incentives and rewards offered to sales reps.
11. Sales Training and Development:
This benchmark refers to the investment made by the organization to train and develop their sales representatives, which can impact their ability to hit their sales quota and earn full compensation.
What are the Benefits of Using Sales Compensation Benchmarks?
Sales compensation benchmarks are important for several reasons. These benchmarks can help organizations to:
- Attract and retain top talent: Effective sales compensation plans attract and retain top-performing salespeople who are motivated by the potential for high earnings. Basically, they help organizations ensure their sales compensation plans are competitive with other companies in their industry. This is important for attracting and retaining top sales talent, as sales reps are often motivated by compensation.
- Drive sales performance: Sales compensation plans that are aligned with organizational objectives and industry standards can drive sales performance and revenue growth.
- Identify areas of improvement: Sales compensation benchmarks can help organizations identify areas for improvement in their compensation plans. For example, if an organization's commission structure is significantly lower than the industry benchmark, they may need to adjust their plan to remain competitive.
Additionally, sales compensation benchmarks can provide organizations with insights into the best practices used by top-performing sales organizations. By studying the compensation structures of these organizations, you can gain insights into how to design effective sales compensation plans.
- Improve sales efficiency: Well-designed sales compensation plans can encourage salespeople to focus on selling high-margin products and services, leading to improved sales efficiency.
- Enhance sales team collaboration: Sales compensation plans that are fair and transparent can promote collaboration and teamwork among sales teams.
How to Improve Sales Compensation Benchmarks?
To improve sales compensation benchmarks, organizations can take the following steps:
Step 1: Analyze industry standards and best practices, and gather data
Conduct research to understand industry standards and best practices in sales compensation, and benchmark your organization's sales compensation plan against these standards.
You can gather data on the compensation structures used by companies in the benchmark group. This may involve conducting surveys, reviewing publicly available data, or other methods.
Remember that the end goal is to identify essential benchmarks that are relevant to your industry, company size, and other factors.
Step 2: Align compensation with organizational objectives
Ensure that your sales compensation plan aligns with your organization's objectives, values, and culture.
In addition, make sure to analyze the data to identify trends and best practices. The idea is to look for areas where your organization's compensation plan may need improvement.
Based on the data analysis, make adjustments to your organization's sales compensation plan as needed. This may involve adjusting commission structures, bonuses, or other elements of the plan.
Step 3: Evaluate sales team performance
Use data to evaluate the performance of your sales team and adjust your sales compensation plan accordingly.
Step 4: Communicate openly and transparently
Communicate your sales compensation plan openly and transparently with your sales team to build trust and encourage collaboration.
Step 5: Offer training and development
Provide training and development opportunities to help salespeople improve their skills and increase their earning potential.
Step 6: Continuously monitor and adjust
Continuously monitor the effectiveness of your sales compensation plan and make adjustments as needed to ensure that it remains competitive and effective.
Wrapping Up
Long story short, sales compensation benchmarks are an essential tool for any organization looking to design an effective sales compensation plan. By using these benchmarks, organizations can:
- Ensure their plans are competitive with others in their industry.
- Identify areas for improvement.
- Retain the top talent.
- Gain insights into best practices used by top-performing sales organizations.
With the right approach, sales compensation benchmarks can help organizations build a sales team that is motivated, engaged, and highly effective.
