How to choose the right sales bonus structure

That’s true for almost any job out there. That’s why it’s essential that your company offers a bonus structure that’s both motivating and satisfying for your sales team. When you get it right, everyone wins.

A strong sales bonus structure goes beyond driving towards exceeding quotas—it also reinforces specific tactics and behaviors that drive successful outcomes.

Knowing what to reward begins with a strong perspective on the playbook you want your teams to run with and an understanding of how your team measures up. The performance baseline is critical—it informs which capabilities you should prioritize and whether these changes are making a difference. This well-oiled machine will be the basis for driving continuous improvement for your sales team.

Let’s go over:

• The two main types of bonuses,
• How to choose a structure based on company size and scale,
• How to make sure you're setting the right bonus structure, and
• How to get the most out of the sales bonuses you're using

Before you choose your company’s sales bonus structure, take the time to understand your options. The two main types of bonuses are variable and above-plan incentives, both of which have their own sub-strategies and considerations.

Variable bonuses

There are two types of variable bonuses: commissions and MBOs, or “manage by outcome.”

Commissions are a standard approach for most sales teams, where a flat bonus is offered for meeting a sales quota. (For example, a tech company might offer a $1,000 commission for closing 20 deals in a month.)

Rather than a flat bonus, commission is a payout based on the amount of revenue you drive for the company. Usually your commission is tied to an achievement percentage, and scales up or down based on what you bring in. There are also usually accelerators when you go above 100% of quota, meaning that you get paid out at an even higher rate for revenue you bring in above and beyond what the business expected of you.

The main problem with commissions is that many companies set the quota too high—or too low.

If you see high turnover, low team morale, and underperformance, it could be a sign that you’ve set your quota too high. When it’s too low, your company ends up overpaying in comparison to your revenue. This scenario can also set a dangerous precedent that’s tough to reset among your reps—how would you feel if you suddenly had to do more work to earn the same commission?

MBOs give each rep their own personal objectives to complement the overall growth of the business. They’re typically set by all levels of management, with the goal of involving everyone in getting better results. Some companies set MBOs at up to 50% of the sales team’s compensation when they have hybrid roles or non-sales related team goals (sort of like a “good citizen award").

Above-plan incentives (aka. SPIFs)

Above-plan incentives are also known as sales performance incentive funds (SPIFs). These are useful for rewarding your team when they learn and apply new behaviors to achieve specific goals you’ve set.

For example, say you want your reps to drive sales of a specific product or service. You can create a SPIF with a defined time frame and criteria for qualification and payout. To a salesperson tasked with the responsibility of selling a SaaS product like Copper, for example, the SPIF could offer $50 on every customer who purchases a specific solution, or spends above a certain threshold.

At the end of the month or quarter, sales performance (compared to pre-defined goals) is used to determine SPIF payouts for each rep. If three customers were closed every week who met the defined criteria, and the SPIF was applicable for a month, the bonus would be $600.

Or it could be for multiple criteria and the SPIF could vary: $25 for a sale; $15 for successful onboarding; $10 for a discovery call.

Keep in mind that SPIFs don’t need to be cash only. Individual or team experiences can be very motivating incentives (and often not nearly as costly). For example, consider arranging a sports day at the office or taking the team out for dinner at an upscale steakhouse if they hit their SPIF targets:

Now, let’s dig into how to choose a bonus structure.

For companies in an earlier stage of growth, the talent tends to skew more junior. These individuals are typically working on building out their sales skill set, strategies, techniques, and plays.

While this can mean a steeper learning curve, it also gives you an opportunity to start these team members off on the right foot by helping them establish good practices early (which makes it less likely that they’ll have to “unlearn” bad habits later).

In an environment where the business is larger and more mature, the reps are likely more seasoned. In those cases, SPIFs may primarily be used to encourage adoption of new campaigns or motions.

Finding the right sales bonus structure for your team might take a bit of trial-and-error to find the right match. And in most cases, you’ll need to combine financial rewards with some good old-fashioned collaboration.

For example, consider a team that’s struggling to land bigger deals. While it might seem like offering a SPIF for big deals can be a solution, it’s often not enough. You’ll need to understand the sales process that each rep currently uses, and compare that to the competencies required for larger deals.

From there, your reps will likely need training, in-deal coaching, and reinforcement from managers. Combining a juicy SPIF with the right level of support makes all the difference in achieving the results you’re looking for. As a manager and leader, it’s on you to lean in with your team!

Here are some additional tips to help you maximize your bonus structure:

Ditch the caps.

Regardless of how you structure your team’s sales bonus, don’t put a cap on the amount of variable compensation a rep can earn. Not only can capping hurt morale, but limiting variable compensation will also prevent reps from giving it their all once they’ve reached their earning limit. Why slow down your business?

Supplement instead of replacing.

Avoid replacing ad hoc competitions and incentives with your sales bonus plan. When building out the structure, make sure to save some room for these kinds of extras. This will give you the flexibility and freedom to throw in additional SPIFs and incentives when morale needs a boost.

Keep your team challenged.

The fastest way to drain your resources is to overpay your team for doing things that they either already do or that are unrelated to important outcomes or behaviors you want to drive. Don’t waste your bonuses on easy targets—keep the team challenged and growing.

Show them they’re appreciated.

In addition to a hearty sales bonus structure, show appreciation and respect for your team in non-monetary ways. In one study, 58% of respondents said that leaders can improve engagement by showing recognition. Don’t underestimate the power of quarterly awards, or even a simple thank you gift:

Companies with a “one size fits all” approach to sales bonuses will likely feel the pain of poor results and wasted budgets. Instead of going for flat, uninspired commissions, take the time to carefully evaluate where your sales team is right now.

What are their habits and behaviors? Where do they excel? Where can they use some improvement? Which core competencies are they lacking? What will help them get to the next level?

Once you align your bonus structure with your team’s capabilities and the company’s goals, make sure you’re supporting them along the way with ample training and education.

When you find the perfect mix, you’ll see your sales numbers and team morale soar.