Employee Management

Setting up a sales commission and bonus policy

Learn where to start when compensating your most valuable employees.

Published: September 08, 2014
Updated: February 16, 2017

The sales team is one of the most important departments in your company and should be properly compensated. Without revenue created by your sales employees, your small business could cease to exist. How you celebrate, motivate, and compensate these individuals is vital to your company's growth.

The value of compensation

A bonus is aptly named: It rewards extra levels of production that go above expectations. You should reward the most highly motivated employees for their extra drive, creativity, and performance.

A commission and bonus incentive structure creates a culture that gives your sales team an opportunity to reach new levels. At the same time, it improves your bottom line and provides a way to promote your business and attract talent. After all, word of a new hire earning a well-deserved commission in one month quickly gets around to other motivated talent.

The right pay plan will also encourage your sales team to take responsibility for itself, allowing you more time to manage other aspects of the business, instead of working to motivate employees daily.

Developing a structure

First, define your base expectations for sales — for example, how many business leads to generate. Then determine what "above and beyond" looks like for your business. Inc.com recommends looking at what other employers in your industry offer.

At my company, I have pay plans and bonuses in place that reward what is good for my business. For instance, I value longer-term contracts from our customers. So we reward our sales team with bonuses for obtaining desired longer-term contracts.  

For selling a month-to-month contract, I pay the sales team a percentage of the first month's payment. For a three-year agreement, I might pay as much as the first three months, even though I have not yet collected payments. The sales person goes from collecting $200 on a short-term agreement to $3,000 on a longer-term contract sold. I only need one person to hit these bonus levels to be able to motivate the entire team.

Overseeing the structure

Offering bonuses should be a win-win for the sales team and the company. Pay bonuses only for extra production, not normal levels that you, as a business owner, would expect. The beginning of the year is usually the best time to implement a new payment structure, and having a leadership team in place to oversee the whole process can be helpful.

Bonuses and commissions should not come without penalties. To create a potential for gain, there must be potential for loss. If sales people are not performing at expected levels, they must be penalized, demoted, or even fired. Don't be scared to let non-achieving sales people go, as it may act as a catalyst for others.

People don't cost money; lost production does. Pay your people well and always be on the lookout for superstar additions to your sales team. Bonuses and commissions will spark their interest