Which bonus system is more suitable for my company?

As a sales manager, the most difficult issue I had was setting up the right bonus system. Creating a system that does not tire the management while motivating the team and does not disrupt the cash flow while moving the company to growth may seem like aligning all the planets, but it is possible if you show the agility to make the necessary changes at the necessary moments.

Bonus systems, just like pricing, are structures that require constant updating. Implementing the right system at the right moment can improve your sales team's performance faster than a double espresso on a Monday morning! In this article, we will examine various bonus structures, their pros, cons and which types of companies they are best suited to. Are you ready to discover the secrets that will not only motivate your team but also align perfectly with your company's strategic goals? "Which bonus system suits my company best?" Read our blog to answer the question:

Bonus systems

1. Commission Based Bonus

Description: Salespeople earn a percentage of the sales they generate. The commission rate may be fixed or may have a tiered structure that increases as the salesperson exceeds certain sales thresholds.

Pros:

• It links rewards directly to performance and provides strong motivation.

• Easy to understand and transparent.

Cons:

• May encourage short-term thinking, prioritizing immediate sales over long-term customer relationships.

• It may encourage discounts in order to sell quickly.

Most Suitable Occasions:

• It is suitable for companies with short sales cycles and less complex products, such as office supplies or software-as-a-service (SaaS) platforms.

2. Profit Based Bonus

Explanation: Bonuses are calculated not only on turnover but also on the profitability of closed transactions. This encourages sales staff to consider not only revenue goals but also profit goals.

Pros:

• Aligns sales activities with the company's profitability targets.

• It discourages margin-eroding discounts.

Cons:

• It can be more complex to calculate and difficult to understand.

• Salespeople may have limited control over costs and pricing, which may unfairly affect their potential bonuses.

Most Suitable Occasions:

• It is suitable for B2B companies in industries such as manufacturing or high technology, where profit margins can vary significantly between products and processes. It can also be used in software companies that sell consulting services.

3. Milestone Based Bonus

Description: Salespeople are rewarded when they achieve specific goals, such as reaching certain milestones in addition to closing transactions; for example, securing a pilot project, signing up a strategic partner or opening a new market territory.

Pros:

• Encourages and rewards the development of long-term strategic goals.

• It is useful in complex sales environments where long lead times are common.

Cons:

• Setting fair and motivating milestones can be difficult.

• It risks focusing too much on specific goals rather than overall performance.

Most Suitable Occasions:

• It is suitable for companies with long sales cycles and high-value products, for example enterprise software companies or those expanding into new geographic markets.

4. Team Based Bonus

Description: Bonuses are awarded based on a team's performance rather than individual contributions. This fosters a collaborative environment and can be combined with individual bonuses.

Pros:

• It encourages teamwork and collaboration.

• It directs the entire team to common business goals.

Cons:

• High performers may feel punished when poor performers reduce the team's overall performance.

• Individual effort may not be sufficiently visible or rewarded.

Most Suitable Occasions:

• It is suitable for companies where sales processes are collaborative and involve multiple roles such as sales, solution sales, technical support and customer service.

5. Customer Loyalty Bonus

Description: Bonuses are given to retain customers for a certain period of time. This is important in businesses where long-term contracts are standard, such as managed IT services or industrial equipment leasing.

Pros:

• Promotes long-term customer relationships and a focus on customer satisfaction.

• Stabilizes revenues from existing customers.

Cons:

• It may not encourage new customer acquisition.

• Depending on contract terms and customer interaction levels, the calculation can be complex.

Most Suitable Occasions:

• Ideal for industries where customer lifetime value is a critical metric and service delivery continues over an extended period of time.

The choice of each sales bonus system varies depending on the nature of the business, its sales environment, and its strategic goals. Companies often use a combination of these systems to balance motivations and align with broader business goals.