Your team’s performance rises or falls based on how you set up the sales incentives. When you choose between the fixed bonuses that guarantee payment and the variable bonuses that connect to results, you’re picking how likely your team will meet or exceed the sales targets. When you become familiar with these different bonus types, it actually helps you build payment structures that work well without spending too much money.
Just remember that your team tends to prefer fixed bonuses because they know what they’ll get, which usually helps people to work together better. With this, everyone knows what they need, and they don’t feel that they have to compete with their colleagues. The variable bonuses create a clear link between the work and the bigger rewards! These bonuses generally help to match what your team members want with what your company needs – they give you some wiggle room with the costs when money gets tight. As you move forward, you should think about your industry, how long your sales take to close, and what kind of team you have before you choose which way to go.
Remember that you’ll get the best results when your bonus plan can give your team the security to push harder – this balanced strategy works for all your employees, and it helps your business to make more money, too.
Let’s talk about the different ways that you can set up the incentives!
Pros And Cons Of Fixed Bonuses
With the fixed bonuses, your sales team gets a reliable paycheck month after month. They can always know what’s coming in, which naturally makes it easier for them to plan for their costs and bills. Your team members will like having that steady bonus that they can depend on. When people worry less about their money, they can focus on doing their job well.
The good news is that fixed bonuses make work easy. Everyone on the team knows what they’ll receive without any of the tough calculations or tracking systems. Your payroll department will like this. You’ll also save some time since you won’t need to explain the complicated bonus structures to your sales reps.
Your team members will generally feel more protected when they have fixed bonuses. They don’t need to stress about hitting the changing targets that sometimes fall outside of their control – this sense of security often leads to people who stay with your company for a longer time. When everyone receives the same bonus, the sales teams develop stronger connections with one another.
Sadly, the fixed bonuses don’t give your top performers the extra recognition that they deserve. Your star salespeople receive the same amount as people who just meet the minimum requirements. Over time, your highest achievers might start feeling undervalued. You could lose your best talent to other businesses that link the pay directly to the results.
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Just remember that your budget can feel the strain of the fixed bonuses – that’s also the case during the slower sales periods. You’ll need to pay out the same bonus amounts if the business is booming or slowing down. When economic times get tough, this inflexibility might put some pressure on your finances. The rigid bonus structure can’t adapt to match your company’s changing financial health. Have you considered how this might affect your cash flow during unpredictable times?
You should watch out for the complacency that sometimes creeps in with the fixed bonuses! Some of your sales reps might only do the bare minimum since their bonus stays the same regardless of their effort – this attitude can damage your sales performance as time goes on. When people don’t have much drive to go past targets, you might see less innovation and extra effort from your team. Try to add some performance incentives to keep the energy levels high.
In some cases, fixed bonuses give people stability while they’re learning how everything works. As your salespeople gain experience, though, they usually like to get rewards based on their personal achievements. Most of the experienced sales pros want to see a direct connection between their hard work and their paycheck. Maybe consider a mixed strategy that gives some security while still rewarding the extra effort.
Pros And Cons Of Variable Bonuses
Variable bonus systems can get your sales team moving. They work by changing the reward based on how much your reps can sell. When your salespeople see that selling more means earning more, they like to work harder – this easy connection between what they do and what they earn makes these bonuses so popular with businesses.
Variable bonuses actually help to connect what your sales reps do to what your company needs. Your team naturally starts focusing on the tasks that matter to your business. They spend more time on the products or markets that make the most money. When everyone works toward the same goals, your whole company benefits from it.
Your business probably goes through some busy times and slow periods. Variable bonuses give you more flexibility during these changes. You won’t have to pay out the big bonuses when sales drop. The good news is your bonus costs naturally go down when the business slows. This built-in protection can save you money during tough times.
Your best salespeople often love the variable bonus plans. They can see their hard work show up directly in their bank accounts. In many cases, these plans let your top performers be their best and earn what they deserve. When outstanding salespeople look for jobs, they generally search for ones where there’s no limit on what they can earn.
Variable systems do come with some drawbacks. Keep in mind that team members might worry about their changing income. Planning their personal finances gets harder when they don’t know what they’ll make in the next month. Some of them might even need to borrow money during the slower sales periods.
Watch out for poorly designed variable systems that can create an every-person-for-themselves environment. Team members might stop helping one another if they’re competing for the same bonus money. Some might even keep promising leads to themselves instead of sharing them. This kind of unhealthy competition eventually hurts your entire team.
It takes some big effort to create fair variable bonus plans. You need metrics that make sense that everyone can see. Your systems for tracking performance need to work well and be open for everyone to view. Businesses find it hard to find the right balance in their bonus formula.
Variable bonuses sometimes push your reps to think too short-term. They might rush to close any deal they can just to hit their monthly numbers. This rush can lead them to sign up customers who aren’t a good fit or make promises your company can’t deliver on.
Direct Comparison Of Bonus Types
When you give fixed bonuses, your sales team gets a clear target to work toward. They’ll know what they’ll earn when they hit their goal – this tends to make the planning a bit easier for everyone! Your team members can trust they’ll receive a set amount of money at scheduled times throughout the year.
Let me explain again how variable bonuses work – your team’s rewards will change based on their sales numbers. The more they sell, the bigger their bonus gets – this setup generally motivates your team to work harder and to close more deals. Salespeople actually like this because they can control how much extra money they earn.
You’ll probably see stronger teamwork with fixed bonuses. Your team members won’t compete for leads as much since everyone receives the same reward. They usually share tips and help one another to reach the team goal – it can help to build a positive company culture over time. Do you see how much better people work together when they’re not competing for the same bonus dollars?
Remember that you might see heightened competition with variable bonuses. Some of your team members will grow in this setting and push themselves for even better results. Keep in mind that this might also create some tension in your team. People sometimes focus heavily on their own sales numbers instead of helping their colleagues.
From your finance team’s perspective, fixed bonuses make budgeting much easier. You’ll know what you’ll have to pay out each quarter or year – it makes your financial planning more predictable. You won’t have to manage any surprise bonus costs that might throw off your budget plans.
The good news is variable bonuses can save you some money when business slows down. As sales drop, your bonus payouts will inevitably decrease, too. The amounts will adjust themselves based on your company’s performance – this setup helps to protect your bottom line during tough times. Why should you pay full bonuses when the company isn’t seeing full results?
Consider trying fixed bonuses for tough sales that take months to close. They’ll reward patience and persistence through the entire sales process. Your team won’t rush through deals just to earn their bonus – this puts quality ahead of quantity. Would you like ten rushed deals or five good ones that would last?
Build a Bonus System for Your Sales Team
Finding the right bonus system for your sales team isn’t a one-size-fits-all strategy. Businesses actually see better results when they use fixed and variable bonuses. This combination can give your team a steady income that they can count on while still encouraging them to aim even higher. You might find that this balance works for keeping everyone motivated without worrying about their money.
In reality, your team needs goals that they can actually reach. When the targets seem too impossible, salespeople usually give up! On the other hand, if you make things too easy for them, they won’t push themselves to do better. That sweet spot takes some time and careful thinking. Try to look at past performance to set targets that still need some effort.
Make your metrics clear. Your sales team shouldn’t need to use a calculator to figure out if they’re on track for a bonus. Make the connection between the work and rewards obvious. People will focus better on the right activities when they can see how their work creates more money in their pockets. Why would you make things tough when being clear drives better results?
Look at businesses like Microsoft and HubSpot for some inspiration. They’ve created bonus systems that fit their business needs. Microsoft uses a combination of team and individual incentives that change with their business goals. HubSpot ties its bonuses to its customer success metrics instead of just closing deals. You can borrow ideas from these strategies and adapt them to match what matters most to you in your business.
Watch out for common mistakes when you try to set up your bonus plan. If you change your bonus structure too frequently, it confuses your employees and breaks their trust. Also, try to stay away from plans that accidentally push people toward harmful habits. Your bonus system shapes behavior, so make sure that it rewards what helps your business grow. Sometimes, the unintended consequences can hurt you more than the planned benefits help you.
Over time, plan to review your bonus system at least once a year. Business goals will change, markets will change, and last year’s strategy might not work well anymore. Ask your sales team for feedback during these reviews. They work with the system every day and often see the challenges and opportunities that you might miss. Their input helps you fine-tune things to match the latest reality of your business.
Level Up Your Incentives and Rewards
Your sales team will probably perform better when you find the right balance in your incentive program. Fixed bonuses can give team members some predictable rewards that they can count on, and variable bonuses might push them to reach for bigger goals. Successful businesses don’t just pick one strategy – they actually blend types to create a more helpful program. When you combine these bonus styles, it works way better than sticking with just one strategy.
Naturally, you should see what matters the most to your business right now. Do you want some steady sales figures, or do you need your team to chase bigger opportunities? Pay attention to how your sales staff responds to the different motivators. In most cases, your thoughts on these questions will point you toward a better incentive plan for your company. Try asking your team directly about what rewards would motivate them the most. You’ll probably find that their feedback is more helpful than you expected!
You’ll learn quite a bit when you test different bonus approaches with your team. Think about trying out a quarterly fixed bonus paired with some monthly variable incentives to see what happens. The reality is the programs that work the best generally evolve over time as you adjust them based on the results. Consider what adjustments you could make to your latest program to better match your company goals and what your team needs. Making small changes can cause better results than overhauls.
It takes time and expertise to design a helpful incentive system. At Level 6 (that’s us!), we help businesses improve through different types of incentive programs. We know how to improve your sales team’s performance and make your employees happier at work. Just to be clear, our services feature branded debit cards, employee recognition programs, and sales incentive plans made just for your business. Remember that we build custom programs that actually work and deliver some real results for you.
Get in touch with us for a free demo and see how we can help you increase your ROI and level up your sales department!
Claudine is the Chief Relationship Officer at Level 6. She holds a master’s degree in industrial/organizational psychology. Her experience includes working as a certified conflict mediator for the United States Postal Service, a human performance analyst for Accenture, an Academic Dean, and a College Director. She is currently an adjunct Professor of Psychology at Southern New Hampshire University. With over 20 years of experience, she joined Level 6 to guide clients seeking effective ways to change behavior and, ultimately, their bottom line.
