Building the right sales incentives plan (SIP) for your business is one of the most important foundations to build a high-performing sales culture. It can also make or break your acquisition engine and break the bank if poorly settled. Although there are multiple ways of building a successful sales incentives plan, let me give you a few guidelines on what good needs to look like. 

Disclaimer: Building the sales incentives plan should be part of a bigger conversation including target setting, sales career path, and territory management.

Building the right sales incentives plan for the right position. 

The different positions in a sales organization.

Before designing the sales incentives plan we need to build some ground rules. We first need to make sure that we have a clear map of all the different positions in the sales team and to do so we can use the sales career path that we have built previously. 

Possible sales positions are generally as follows:

• Sales Development Representative (SDR): focused on prospection and creating opportunities for account executives.
• Account Executive (AE): focused on sales acquisition. Takes its opportunities from different channels and tries to close the prospect into a paying customer. 
• Team Leader (TL): Lead AEs and/or SDRs in a specific territory or channel. Usually manages no more than 5 people and is responsible for their team target attainment and coaching. 
• Sales Manager (SM): Manage the team leads in a country or a specific segment of the market. They are responsible for target attainment, sales planning (strategy, capacity planning, territory management…), and more. 

For each of these positions, the level of experience also varies from junior to senior and that should be taken into account. It is also important to clearly lay down their roles and responsibilities as it will help us later in the design of the sales incentives plan to make sure we incentivize the right behaviors. 

Ground rules before building the sales incentives plan.

Last but not least before we jump into the designing and building part, we need to align on some principles:

• Keep it simple and transparent: everybody on your team should understand it, especially newcomers. Tip: if they can’t explain it back to you, then your SIP is too complicated. 
• Make it short-term: there is nothing worse as a sale than being paid for a deal you closed 6 months later. Keep it under 60 days. 
• Make it easy to track (and deliver): everybody should be able at any given time to know how much they will make at the end of the month. 
• Make it fair: Incentives should always be fair to everybody.
• Link the variable to target attainment: I’ve seen in a lot of companies that they give a percentage of the revenue sold. I can assure you this is a recipe for bankruptcy. 
• Avoid using clawbacks as it will create uncertainty and will kill motivation, offsetting the little revenue you’ve clawed back. 

SDR incentives plan

While the role of sales development representatives is not to generate revenue directly but sales qualified leads (SQL), I still believe it is important to link their results to revenue. To build this inside their SIP I would do as follows:

Position	Base salary	Variable	Target 1	Target 1 weight	Target 2	Target 2 weight
Sales development representative	$50,000	$50,000	Generate 30 SQLs / month	50% – 75%	# of SQLs converted to deals or revenue generated through the SQLs	25% – 50%

Let’s assume that both targets are weighted equally, which means that on-target earnings (OTE) can only be achieved if both targets are met. 

OTE = $50,000 (base salary) + ($25,000 (half the variable) x Target 1 attainment) + ($25,000 x Target 2 attainment)

If the SDR exceeded its first target at 105% but it only translated to 80% of the targeted revenue/conversion then they will make:

OTE = $50,000 +  ($25,000 x 105%) + ($25,000 x 80%) = $96,250

You can add on top of that some bonuses to incentivize on decision-maker type, e.g. you get an extra $100 if it’s the CXO of the company. 

This is called a linear model as the variable is linear with target attainment. While there are other models to calculate sales incentive plans like taking a percentage of the annual contract value (ACV), I generally don’t recommend it. They tend to increase motivation in the short term but they will also increase cost of acquisition (CAC) and reduce the need for promotion which will kill the growth expectation in sales teams and increase attrition in the long term.

Account executive’s incentives plan

The account executive incentives plan is not far from the SDR one. The only difference is that they will solely be based on revenue generated. 

So if we take an AE with a target of $600,000 to cover its OTE of $200,000, then the plan will look like this:

Position	Base salary	Variable	Target	Cap
Account executive	$100,000	$100,000	$600,000	No cap and no floor

Assuming 2 situations:

Situation	Base salary	Variable	Target attainment	Payout
Under target	$100,000	$100,000	80%	$180,000
Above target	$100,000	$100,000	115%	$215,000

As it is still a linear model the calculation is simple:

OTE = base salary + (variable x target attainment) 

Again here you can add SPIFFs and bonuses to incentives on other behaviors that you’d like to see in the AE. Here are 2 of my favorites but get creative with them:

• +$XXX for X months/years contracts: helps increase average LTV and incentivize AEs to close harder contracts.
• +$XXX if the team is on target: this one helps reduce the risk of creating a cut-throat culture and incentivizes the best performers not to bank their deals for next month if they support the remaining of the team and make extra money. 

Team leader’s incentives plan

The difficulty with the team leader incentives plan is less in the model itself as you can also use a linear model here but in how you target them.

The simplest and most used answer is to sum up all their direct reports’ targets and add the TL target on top of it if they are still selling (not recommended). This is, to be honest, a good method to incentivize TLs but they might get lost in what needs to be done to influence their team target. I will recommend topping it with either bonuses or using a weighted targets model to also incentivize the behaviors behind the results. 

Here are a few examples:

• +$XXX (or target % weighted at 25% of total variable salary) for % of total salespeople on target: this forces team leaders to build a homogeneous team and not rely solely on a couple of champions that generated 80% of the total revenue.
• +$XXX for the average ACV of deals closed by the team to reduce the incentives to use discounts to close more.
• Create a president club for team leaders 

Sales manager’s incentives plan 

Although we can take the same route as the TL for the sales manager, i.e. summing up their direct reports’ targets, I would like to explore another interesting avenue here.

Depending on the amount of liberty and responsibility your sales managers have we can use in this case a top-down approach on targets with a light P&L (profits and losses) model. In other words, giving a challenging target to the sales manager and offering the liberty to design the strategy and deploy the resources as they see fit within their realm. 

Something in the realm of: you need to generate $XM in new revenue in the northeast coast region with a budget of $XM. The target(s) can be one of these 2 numbers or along the line of GTM efficiency, i.e. were you able to generate the expected revenue but with more or less of the dedicated budget? 

Use of floors, caps, accelerators, and other incentives to supercharge your sales incentives plan

There is more than just target attainment that you need to take into consideration when building your sales incentive plan for your employees. 

• Monthly vs Quarterly payment: both offer advantages and disadvantages, we tend to use monthly payments for short sales cycles like SMB accounts and quarterly payments for more complex segments like mid-market and enterprise. If you do use quarterly payments, I would recommend doing accruals so that you don’t have spikes in costs in your P&L.
• Cap: although commissions are usually uncapped, at least in the tech world depending on your situation you might decide to cap the potential earnings in your sales incentives plan to avoid breaking the bank too much. I would recommend however to review targets rather than capping commissions. 
• Floor: This can be an excellent tool to protect yourself against a spike in CAC. Putting a floor in your SIP allows you to only start paying commissions when you break even between the cost of acquisition and revenue generated. E.g. variable is unlocked only if you reach 60%+ of target attainment. 
• Accelerators/decelerators: accelerators are an amazing way to push people to go above and beyond in your business. It can motivate higher performers not to bank deals for the following month to maximize this month’s commission. A typical way of doing this is artificially increasing target attainment when they are over the target. E.g. Once you reach 110% of target attainment the company will assume 10% for the payment (i.e. 120%). On the other hand decelerators, just like floors can be a great way to protect you from CAC but the impact on motivation could kill your team. I would be cautious while using it. 
• Onboarding program: make sure to take into consideration ramping salespeople as you want to motivate them and show that hitting target and getting commission is possible while they are still onboarding but you don’t want to make it too easy and have them making disconnected amounts of commissions while ramping up. 
• President club: another great way to incentivize sales, especially the highest performers. It is also an industry standard to put some form of president club in place. Make sure to have categories and to compare apples to apples to avoid having enterprise sales with bigger ACVs always taking first place.