Designing a compensation plan isn’t just about paying your staff; it is about engineering the specific behaviours that lead to business growth. For Australian small business owners, a well-structured plan ensures your team is motivated to hunt for the right type of revenue while keeping your profit margins protected.
Why Compensation Design Matters
If your compensation plan is misaligned, you might find your sales team closing deals that aren't profitable or focusing on easy ‘low-hanging fruit’ rather than the strategic accounts your business needs to scale. A high-performance plan creates a 'win-win' where the employee’s financial success is directly tied to the company’s revenue milestones.---
Prerequisites: What You’ll Need
Before you start crunching numbers, ensure you have the following ready:- Your Annual Revenue Target: The total figure you need to hit this financial year.
- Customer Acquisition Cost (CAC) limits: How much you can afford to pay to win a new client.
- Historical Sales Data: Average deal size and sales cycle length.
- Role Definitions: Clarity on who is a 'Hunter' (New Business) vs. a 'Farmer' (Account Management).
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Step 1: Define Your Strategic Business Objectives
Before looking at commissions, decide what 'success' looks like this year. Are you trying to gain market share (volume), increase profit margins (quality), or move towards a subscription model (recurring revenue)? Screenshot Description: You should be looking at a spreadsheet or whiteboard with three columns: Goal, Metric, and Priority Level.Step 2: Determine the Total Target Remuneration (TTR)
The TTR is the total amount an employee earns if they hit 100% of their quota. In Australia, you must ensure the base salary component meets Fair Work requirements and relevant Award rates.- Pro Tip: Research industry benchmarks in Brisbane or your specific region to ensure your TTR is competitive enough to attract top talent.
Step 3: Set the Pay Mix (Base vs. Variable)
The 'Pay Mix' is the ratio of base salary to commission.- Aggressive (50/50): Common for pure New Business Development Managers.
- Balanced (60/40): Standard for most B2B sales roles.
- Conservative (80/20): Better for Account Managers with long, complex sales cycles.
Step 4: Establish the Commission Structure (Flat vs. Tiered)
Decide how you will calculate the variable component.- Flat Rate: A fixed percentage of every dollar sold (e.g., 5% of revenue).
- Tiered/Accelerated: The percentage increases as the salesperson hits certain milestones (e.g., 5% up to $50k, 8% for everything over $50k). This encourages high performers to keep pushing after they hit their initial target.
Step 5: Choose Your 'Quatification' Metric
What specific action triggers a payment?- Revenue: Total dollar value of the contract.
- Gross Profit: Best for businesses with variable margins (e.g., construction or wholesale).
- Units: Number of products sold or new subscriptions signed.
Warning: Avoid paying commission on 'booked' revenue if your industry has high cancellation rates. It is often safer to pay on 'collected' revenue or after the first invoice is paid.
Step 6: Define Quotas and Territory
Set realistic but challenging quotas based on your annual revenue target. Ensure the territory (whether geographic like 'South East Queensland' or industry-based) has enough potential leads to actually support the quota you’ve set.Step 7: Incorporate 'Clawbacks'
A clawback is a clause that allows the company to recoup commission if a customer cancels or fails to pay within a certain timeframe (usually 90 days). This ensures the sales team focuses on 'quality' customers who intend to stay.Step 8: Set the Payment Frequency
Monthly commission payments are generally more motivating than quarterly or annual ones. It provides a tighter feedback loop between the effort (the sale) and the reward (the cash).Step 9: Model the Financial Impact
Before rolling the plan out, run 'stress tests' in a spreadsheet.- Scenario A: What happens if everyone hits 150% of their goal? Can the business afford the payouts?
- Scenario B: What happens if a salesperson hits only 50%? Is their base salary high enough to retain them?
Step 10: Document and Communicate
Draft a clear, 2-page Sales Compensation Policy. Avoid 'legalese' where possible. It should clearly state how commissions are calculated, when they are paid, and how disputes are handled. Under Australian law, ensure this is separate from the employment contract if you want the flexibility to change the plan annually.---
Common Mistakes to Avoid
- Capping Commissions: Never put a 'ceiling' on what a salesperson can earn. If they are making a lot of money, it means they are bringing in huge amounts of revenue for you. Capping earnings kills motivation.
- Over-complicating the Formula: If a salesperson can’t calculate their expected commission on the back of a napkin in 30 seconds, the plan is too complex to motivate them.
- Ignoring the Support Team: While sales drive revenue, ensure your delivery or admin team isn't forgotten. Consider small 'spot bonuses' for support staff when the company hits major milestones.
Troubleshooting
- "My team is hitting their targets but we aren't making a profit."
- "Salespeople stop working once they hit their monthly goal."
- "The admin of calculating commissions is taking too long."
Next Steps
Once your compensation plan is designed, the next step is to ensure your lead generation engine is strong enough to feed your team.If you need help aligning your marketing strategy with your new revenue goals, or if you want a professional review of your sales operations, contact the team at Local Marketing Group. We help Brisbane businesses build the systems that drive predictable growth.