A Crafty Concoction: The Pay-mix Ratio!

If you have taken on the herculean task of designing your company’s IC plan, you may find yourself in a conundrum. Organizations today are diverse, to say the least. So are their IC plans and pay philosophies. There is no ‘one size fits all’ compensation plan that sales leaders can pick off the shelf, and customization is key. 

In more ways than one, the situation of a sales leader is similar to that of a mixologist here. The mixologist uses different ratios of the same ingredients to skillfully create concoctions perfectly tailored to the customer’s taste. The sales leader attempts to do the same thing!

The Pay-mix concoction has two main ingredients- Base Salary and Incentives- that make up the On Target Earnings (OTE). To put it simply, the Pay-mix Ratio essentially communicates to your sales reps how they would be paid. 

That’s why getting this concoction right is crucial to your success- you want to give your best talent a reason to not just accept a position in your team but to stay with your organization long-term. 

Is your Pay-mix optimal?

An optimal Pay-mix Ratio has the potential to drive performance, motivate reps and overall lead the company towards success. If you are in charge of designing the IC plan for your company, it would be helpful to go over this short checklist to ensure that your Pay-mix Ratio is optimal- 

Is your Pay-mix Ratio providing structure to your team?

The goal of an optimal Pay-mix ratio is to make sure that there is a defined way in which your team members are getting paid. Therefore, you can differentiate between junior and senior sales reps and the ratios can be different for both. Providing structure can help your reps understand that their performance can drive them to better positions and better pay ratios. 

Is your Ratio motivating your reps?

The ratio should clearly and efficiently communicate to your reps the manner in which they will get paid. Pay transparency and a right Pay-mix Ratio that works will go a long way in motivating your reps and getting better outputs. 

Is your Pay-mix Ratio helping you forecast your sales better?

Ultimately, an efficient pay philosophy should lead to an increase in confidence regarding the growth of your company. A good Ratio should help you forecast your payouts and profit more accurately. 

In search for the Golden Ratio? 

This is the truth- there is no golden ratio. What may work for one company may not work for you. One company may choose to adopt an incentive-based compensation plan with a lower base salary, another company may focus on a higher base salary with lower variable pay to reach targets. Ultimately, it will be your company goals and philosophies that will determine your Pay-mix Ratio. 

To help you get started, here are some questions you can address when you’re trying to determine the right ratio that works for you-

  • What are the products that each rep is selling? Is it a difficult product to sell?
  • What is the level of autonomy in the sales process? Is your rep bringing the leads to you or are you providing them with leads?
  • What is the level of experience needed to sell a particular product?
  • What is the average length of a product pipeline? Does it take time to sell a product?
  • What is the transaction volume? 
  • What are the industry standards?

The rule of thumb is that if the sale is simple, short and the rep does not have a substantial impact over the customer’s behavior, the Pay-mix Ratio balance tilts towards the heavier Base Salary. On the other hand, a complicated sales pitch that requires highly-skilled reps will provide for a larger variable pay. 

No matter how complicated your Pay-mix Ratio is, you can always automate your Incentive Compensation Plan to ensure that your reps get real-time visibility. For more information, book a demo with us!

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