'What is the right sales compensation?' is a question, which dogs all the sales management executives.
Following are the driving factors for sales compensation decision:
Level of difficulty in selling.
Greater is the level of difficulty in sales (due to competition land-scape, complexity of the product and also the demand-supply state of the product..), higher is the level of compensation needed. More difficult sales mean lesser sales productivity and slower sales velocity. Therefore, if a sales person has to have a decent pay-cheque every month, one has to given more dollars per unit of sales.
State of competition.
Higher is the level of competition, means that you have to hire more aggressively, presumably better quality sales force, which will lead to higher sales compensation.
Availability of sales force.
Availability of skills is inversely proportional to the level of compensation
Required speed of ramp-up in sales.
If you want to ramp-up your sales in an accelerated manner, one has to hire more sales staff (or 3rd party distribution sales channel) OR give higher compensation to the existing staff OR both.
Compensation given by the competition.
This applies on all employees OR suppliers. Typically a company has to be in the same zone of compensation as offered by competition in terms of overall value-proposition..
Long term sustainability of sales compensation structure.
Long term here means at least for a year OR two. Sales compensation does keep on varying, sometime quarter by quarter, but that's more on the secondary components OR add-ons (like special incentives for a sales campaign..), but the core components should ideally stay constant.
Retention of sales staff.
Sales compensation is expected to retain the high performance sales staff.