Tips for Compensating Teams

With the increasing complexity of the sales process and a greater focus on customer satisfaction, more and more organizations are implementing a team-based approach to sales.

A team may include only two people – a sales rep and an administrative assistant – or a much larger group of several sales associates, telesales reps and customer support staff. Whatever the size or composition of the team, the purpose is the same: to increase production.

The problem is that many companies compensate teams using the same strategy, and sometimes even the same compensation plans, that they use for single sales representatives. That doesn't work.

You need to make sure that the company recovers all the costs associated with the team and builds in the desired level of profitability. Here are some tips for structuring team-based compensation.

It costs your company a certain amount to support any individual who is working for the company. You need to know what that cost is. Typical expenses include office space, furniture, computer, phone service, parking and utilities. Don't forget human resources costs like processing paychecks and tax forms.

Many companies ignore these costs, thinking that the incremental expense is too small to make a difference. However, we recently worked with one mid-sized company that discovered they were losing $280,000 a year because they had ignored those expenses.

Once you know how much each person costs, you can design commission structures so the company recovers those expenses. Optimally, you want to create a separate pay schedule for teams that accurately reflects the goods and services they consume.

It may make sense for each team to create its own business plan, which provides for the apportioning of commissions and expenses according to each person's expected contribution. If this is done, the plan should then be revisited each year to make sure it accurately represents each person's involvement on the team.

One advantage of these business plans is that each team can decide what resources it needs. For example, one team may want company cars. Another may prefer to minimize their use of office space by having people work from home and share space when they are in the office. In each case, their compensation can reflect those expenses or savings.

What's important is that the company has a way to recover the cost of providing goods and services to sales representatives. The most fair and consistent approach is to have the people who consume those goods and services pay for them.