Why Tiered Commission Is The Best

Jun 04, 2024
Why Tiered Commission Is The Best

The best salespeople in the world are motivated by money.

  • They don't hide from this fact, they embrace it
  • They seek to sell valuable solutions to big problems
  • They seek high earning potential and recognition
  • They seek a brand and product that delivers on its promise
  • They seek a team with shared values and culture
  • Most importantly, they seek uncapped financial rewards

A tiered commission structure is the best way to incentivize salespeople.

The concept is simple...

The higher your quota attainment, the higher your payout rate.

This changes the game from hitting or missing quota...

To a game of salespeople working their way up a monthly ladder of money.

This game breaks their achievements down into smaller buckets.

Each bucket unlocks more income, keeping them consistently motivated.

For this to work, of course, you must first have a proven attainable quota.

But Collin, how do you prevent reps from sandbagging deals?

Sandbagging, for those who don't know, is when a rep knows they're going to miss their quota in month X so they hold their deals back for month Y.

First, sandbagging only happens with bad salespeople.

So it should never be a long-term concern.

It should be something that generally doesn't happen with good sellers.

The best way to manage this effectively is to manage the pipeline.

Managers should know where deals are at and if a rep is sandbagging, it should be brought into question in real-time.

Setting that aside, the value you will get from a tiered commission plan will outweigh any risk of sandbagging, which should be minimal.

What you want is to unlock the peak potential of every seller on the team.

You do this by providing incentives that constantly unlock more income.

If you really want to push the needle, add an extra spot bonus into your comp plan for anyone who hits quota by the 15th of the month.

I've done this in the past and it pushes your top performers to work even harder because the impact to their income is substantial.

But Collin, we can't afford to pay salespeople more.

Yes you can, because when your average quota attainment goes up, you need fewer AE's in total.

This is why super high quotas with 40% average attainment is a ridiculous business model.

It's significantly more expensive than doing it the right way.

When quotas are attainable and teams are smaller, they crush quota because the pipeline is spread across fewer sellers.

You can afford to pay more on commission because you're paying less in overall base salaries and overhead.

The same applies to the SDR role, just change the target and payout percentage to align with however you're paying SDR's for qualified opportunities.

Don't be lazy with your comp plan.

Take the time to maximize its potential.

A lazy comp plan (flat rate %) will always result in a lazier sales team.

Salespeople are wired to follow the money.

Give them a money trail to follow.

Your revenue growth rate will thank you.

Happy Selling,

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