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Navigating the world of sales compensation can be complex, with a range of terms and concepts that can be overwhelming. To make it easier, we’ve created a comprehensive Sales Compensation Glossary to help you stay informed and confident. Whether you’re in Sales, HR, or Finance, this resource breaks down the jargon, so you can focus on driving performance and growth. Take a look!
Accelerator – An accelerator consists on a higher commission rate that applies once a salesperson surpasses a specific target. This motivates sales professionals to strive for exceptional performance beyond predefined goals, encouraging a culture of excellence and exceeding expectations.
Accrued commission – Accrued commission refers to the earnings that a salesperson or agent has earned but not yet received. It is recognized as revenue on the company’s financial statements during the period it is earned, even if payment has not yet been made. This accounting method ensures that revenue is matched with the period in which it was generated, providing a more accurate financial picture.
Account Executive – A professional responsible for managing client accounts, acquiring new business, and maintaining relationships with existing clients. They act as the primary point of contact between the company and its clients, ensuring customer satisfaction and driving sales growth.
Account Manager – A professional dedicated to managing and nurturing client relationships, ensuring their needs are met, and addressing any issues that arise. Account managers focus on retaining clients, upselling additional services, and providing ongoing support to maximize customer satisfaction and loyalty.
Annual Bonus – A performance-based incentive paid at the end of the year, rewarding employees for meeting or exceeding annual goals. Annual bonuses motivate long-term performance, align individual efforts with organizational objectives, and provide significant financial rewards.
Annual Contract Value (ACV) – The yearly revenue generated from a customer contract. ACV provides insights into the financial impact of customer contracts over a 12-month period, serving as a key metric for revenue forecasting and business planning.
Annual Recurring Revenue (ARR) – The value of the contracted recurring revenue components of your term subscriptions normalized to a one-year period. ARR is a crucial indicator of a company’s revenue stability and growth potential, reflecting the predictable income stream from subscription-based services.
Attainment – The percentage of the sales target that has been achieved. Attainment measures the success of sales efforts against set objectives, guiding performance evaluations and identifying areas for improvement within the sales team.
Attrition – The reduction in the number of employees or customers over time due to resignations, retirements, or cancellations. High attrition rates can indicate underlying problems within a company, such as employee dissatisfaction or poor customer service, and can impact overall business performance.
Base Commission – The standard commission rate earned by sales reps before any accelerators, decelerators, or additional incentives are applied. Base commissions form the foundation of variable pay, ensuring a basic reward for sales activities while setting the stage for additional earnings.
Base Salary – The fixed component of a salesperson’s earnings. Base salary provides financial stability and serves as a foundation for a sales professional’s compensation package, ensuring a minimum level of income regardless of sales performance.
Benchmark – A standard used for comparing measurements or assessments, serving to evaluate performance or quality against a reference point. Acts as a baseline for assessing progress, efficiency, or competitiveness in revenue, sales, and commissions contexts. Essential for goal-setting, informed decision-making, and enhancing improvement strategies.
Bonus – Additional compensation awarded for achieving specific goals. Bonuses serve as incentives to drive exceptional performance, rewarding sales achievements beyond regular expectations and motivating sales teams to excel.
Bonus Payout – The actual disbursement of bonus payments to employees based on their performance relative to predefined targets. Bonus payouts can be a significant component of total compensation and are often used to reward exceptional performance and drive motivation.
Bonus Scheme – A structured plan that outlines the criteria and rewards for achieving specific performance goals. Bonus schemes are designed to motivate employees by offering financial incentives for meeting or exceeding targets, thereby aligning their efforts with the company’s strategic objectives.
Book of Business – The total revenue or sales generated by a salesperson or a sales team. The book of business represents the cumulative value of accounts managed by sales professionals, illustrating their contribution to revenue generation and customer relationships.
Business Development (Department) – A team within a company focused on identifying and creating growth opportunities, such as new markets, partnerships, and customer relationships. The business development department plays a crucial role in driving long-term strategic growth and expanding the company’s market presence.
Cap – The maximum amount of commission or bonus a salesperson can earn. Caps establish an upper limit on earnings to manage costs and incentivize consistent performance without excessive payouts, maintaining financial balance within the compensation structure.
Churn – The rate at which customers stop doing business with a company, usually measured over a specific period. High churn rates can indicate customer dissatisfaction and may prompt businesses to improve their products, services, or customer engagement strategies to retain clients.
Clawback – The recovery of previously paid incentives due to returns, cancellations, or errors. Clawbacks safeguard company interests by reclaiming overpaid incentives in cases where sales results are revised or contracts are terminated, maintaining fairness and accuracy in compensation payouts.
Cliff – A term used in employee compensation plans, referring to a point at which employees become eligible to receive certain benefits or stock options. Typically associated with vesting schedules, a cliff can motivate employees to remain with the company until they reach this milestone.
Commission – Variable pay based on sales performance, typically a percentage of sales. Commissions reward sales professionals for their contribution to revenue generation, aligning compensation with individual sales achievements and promoting a performance-driven culture.
Commission Draw – An advance against future commission earnings. Commission draws provide salespeople with immediate financial support based on anticipated sales commissions, enabling consistent income flow and alleviating short-term financial pressures.
Commission Rate – The percentage or amount paid per sale or unit sold. Commission rates determine the proportion of sales revenue allocated to sales professionals as compensation, influencing earning potential and incentivizing sales performance.
Compensation Plan – The complete structure of base salary, commissions, bonuses, and other incentives. Compensation plans outline the terms and conditions of sales professionals’ earnings, including fixed and variable components, to ensure fair and transparent reward systems aligned with business objectives.
CRM (Customer Relationship Management) – A technology platform or strategy used to manage a company’s interactions with current and potential customers. CRM systems help streamline processes, improve customer service, and increase sales by providing comprehensive data on customer behavior and preferences.
CSM (Customer Success Manager) – A professional dedicated to ensuring customers achieve their desired outcomes with a company’s products or services. CSMs work proactively to engage customers, address their needs, and foster long-term relationships, reducing churn and increasing customer loyalty.
Decelerator – A lower commission rate applied to discourage excessive payouts or poor performance. Decelerators introduce penalties for underperformance or excessive earnings, incentivizing sales professionals to maintain consistent sales results and adhere to performance expectations.
Direct Sales – Sales made directly to the end customer without intermediaries. Direct sales involve direct interactions between sales professionals and customers, allowing for personalized engagement, tailored solutions, and immediate feedback within the sales process.
Discretionary Bonus – Additional pay awarded at the discretion of management. Discretionary bonuses are granted based on subjective evaluations of exceptional performance, special achievements, or other non-metric criteria, providing flexibility in rewarding outstanding contributions.
Draw – See Commission Draw. A draw is an advance payment against future commission earnings, providing financial support to sales professionals during periods of variable income or sales fluctuations, ensuring financial stability and motivation to drive sales performance.
Earnings Before Interest and Taxes (EBIT) – An indicator of a company’s profitability, excluding interest and income tax expenses. EBIT reflects a company’s operational performance by measuring earnings before accounting for financial and tax-related factors, indicating the core profitability of the business.
Earnings Before Interest, Taxes, Depreciation, and Amortization (EBITDA) – A measure of a company’s overall financial performance. EBITDA evaluates a company’s profitability and operational efficiency by excluding non-operating expenses like depreciation and amortization, providing insights into cash flow and business sustainability.
Effective Rate – The actual commission rate paid after considering accelerators, decelerators, and other adjustments. The effective rate calculates the final commission percentage received by sales professionals, accounting for performance-based modifications and incentive structures to accurately reflect earned compensation.
ERP (Enterprise Resource Planning) – A software solution that integrates various business processes and functions, such as finance, human resources, and supply chain management, into a single system. ERP systems enhance efficiency and data accuracy by providing a unified platform for managing company operations.
Expense to Revenue Ratio – The ratio of expenses to revenue, used to measure efficiency by comparing the total operating expenses of a company to its total revenue. A lower ratio indicates higher efficiency, as the company is able to generate more revenue per unit of expense, while a higher ratio may suggest inefficiencies or higher costs.
Flat Commission – A fixed amount paid per sale, regardless of the sale value. Flat commissions offer a straightforward compensation model where sales professionals receive a consistent payment for each sale made, simplifying earnings calculations and incentivizing sales volume.
Floor Commission – The minimum commission guaranteed regardless of sales performance, ensuring that sales personnel receive a basic level of income even if they do not meet sales targets. This type of commission provides a safety net for employees and can help maintain morale and motivation during slower sales periods.
Gross Margin – Sales revenue minus the cost of goods sold. Gross margin measures the profitability of products or services by subtracting production costs from total sales revenue, indicating the financial health and efficiency of a company’s operations.
Gross Salary – The total amount of an employee’s earnings before any deductions are made. Gross salary includes base pay, bonuses, commissions, and any other financial compensation, providing a comprehensive view of an employee’s total earnings.
Gross Sales – The total sales before any deductions, representing the complete amount of sales revenue generated by a business without accounting for returns, allowances, or discounts. Gross sales provide a measure of the overall demand for a company’s products or services before any adjustments.
Hurdle Rate – The minimum performance level needed to earn a commission. Hurdle rates establish performance thresholds that sales professionals must exceed to qualify for commissions, setting clear expectations and motivating continuous improvement in sales results.
ICP (Ideal Customer Profile) – A detailed description of the type of customer that is most likely to benefit from a company’s products or services. The ICP includes demographic, geographic, and behavioral characteristics, helping sales and marketing teams target their efforts more effectively.
Inbound Sales -Inbound sales means interacting with potential customers interested in a company’s products or services, shown through actions like form fills, downloads, or inquiries. Inside sales reps work on guiding these leads through the sales funnel with answers, demos, and tailored solutions to convert them, aiming to build relationships and provide value to interested leads.
Incentive Compensation – Additional pay designed to motivate and reward performance. Incentive compensation aligns the interests of sales professionals with business goals by offering rewards for achieving specific targets, driving motivation, and fostering a culture of high performance.
Incentive Compensation Management (ICM) – Software or processes used to manage and optimize incentive pay. ICM systems automate the administration of incentive compensation programs, streamlining calculations, reporting, and analysis to ensure accuracy, transparency, and efficiency in rewarding sales performance.
Indirect Sales – Sales made through intermediaries like distributors or resellers. Indirect sales involve third-party channels that facilitate product distribution to end customers, expanding market reach, and leveraging partner networks to drive sales growth and customer acquisition.
Inside Sales (Department)- The inside sales department remotely engages with prospects and customers to generate leads, close sales, and manage customer relationships. They use phone calls, emails, video conferences, and digital tools for sales activities. They handle inbound leads by nurturing potential customers, conducting demos, providing support, negotiating terms, and finalizing sales. Inside sales reps efficiently reach a wide audience, reduce travel costs, and enable scalable sales operations.
Kicker – An additional incentive for achieving beyond set targets. Kickers reward exceptional performance that surpasses predefined goals, offering extra incentives to motivate sales professionals to aim higher, achieve more, and exceed performance expectations.
Key Performance Indicators (KPIs) – Quantifiable measures used to evaluate success in achieving specific objectives, such as sales targets, conversion rates, and customer satisfaction scores. KPIs provide actionable insights, guiding performance management and strategic decision-making.
Leverage – The ratio of variable to fixed pay in a compensation plan. Leverage determines the balance between fixed and variable components in a compensation structure, influencing the risk-reward profile for sales professionals and aligning earnings with performance outcomes.
Management by Objectives (MBO) – is a strategic approach where performance goals are established collaboratively between managers and employees to achieve specific results. It aims to align individual objectives with organizational goals, fostering clarity and accountability in the workplace.
MEDDIC – MEDDIC is a sales methodology framework designed to help sales teams qualify and close opportunities effectively by focusing on six key elements: Metrics (defining the client’s objectives and expected outcomes), Economic Buyer (identifying the person with the purchasing authority), Decision Criteria (understanding the factors influencing the purchase decision), Decision Process (knowing the stages and individuals involved in the decision-making process), Identify Pain (detecting the client’s specific problems that your product can solve), and Champion (developing an ally within the client’s organization who supports your solution). Implementing MEDDIC helps sales teams focus on high-probability opportunities, reduce sales cycles, and increase closing rates.
Monthly Recurring Revenue (MRR) – is a key metric in subscription-based businesses, representing the normalized monthly revenue derived from recurring sources such as subscriptions or service contracts. It provides insights into the predictability and sustainability of revenue streams over time.
Multiyear Contract – refers to a sales agreement with a duration exceeding one year, typically outlining terms, conditions, and obligations between parties for an extended period. These contracts often involve complex negotiations due to their long-term nature, requiring thorough consideration and planning.
Net Retention Rate (NRR) – measures the effectiveness of retaining existing customers by calculating the percentage of recurring revenue retained after factoring in customer churn (loss) and upsells (expansion). It reflects the ability of a company to maintain and grow revenue from its customer base.
Net Salary – The amount of an employee’s earnings after all deductions, such as taxes, insurance premiums, and retirement contributions, have been subtracted from the gross salary. Net salary represents the actual take-home pay that an employee receives.
OKR (Objectives and Key Results) – A goal-setting framework used to define and track objectives and their associated outcomes. OKRs help align individual and team goals with the company’s strategic objectives, fostering a results-driven culture and improving performance tracking.
On-Target Earnings (OTE) – OTE concept represents the total expected earnings for a salesperson if they meet their performance targets and objectives. It comprises base salary, commissions, bonuses, and other incentives, providing a clear incentive structure to motivate sales teams towards achieving their goals.
Outbound Sales – Outbound sales involve reaching out to potential customers who haven’t shown interest before through methods like cold calling, emails, and social media. Sales reps identify leads, research their needs, and introduce the company’s offerings to create new business opportunities.
Override – refers to the additional commission earned by a manager or senior sales representative based on the performance of their team. It incentivizes leadership roles to drive team success and performance, fostering a collaborative and supportive sales environment.
Payback Period – The time it takes for an investment to generate enough profit to recover its initial cost. In sales, this metric helps assess the efficiency of marketing and sales strategies, determining how quickly investments in these areas start yielding positive returns.
Pay Mix – refers to the distribution ratio between base salary and variable pay components such as commissions, bonuses, or incentives. It plays a crucial role in designing compensation structures that balance fixed and performance-based elements to motivate and reward employees effectively.
Payroll – The process of calculating and distributing employees’ wages, salaries, bonuses, and deductions. Payroll management ensures employees are paid accurately and on time, and it involves compliance with tax laws and labor regulations.
Payout – The distribution of earnings, bonuses, or commissions to employees or stakeholders. Payouts can be in the form of cash, stock options, or other financial rewards, serving as incentives to achieve specific performance targets or to share in the company’s success.
Profit Margin – The difference between sales revenue and costs, indicating the profitability of products or services. High profit margins suggest effective cost management and pricing strategies, while low margins may highlight areas needing improvement to boost financial health.
Performance Threshold – denotes the minimum level of performance that individuals must achieve to start earning commissions or bonuses. It serves as a benchmark to ensure that compensation is tied to results, encouraging continuous improvement and goal attainment.
Performance Improvement Plan (PIP): A structured plan used by employers to help underperforming employees improve their work performance. It outlines specific goals, actions, and timelines for improvement, often including regular progress reviews.
Quota – defines the specific sales target set for salespersons or teams within a defined period. It serves as a benchmark for performance evaluation and goal setting, driving sales productivity and revenue generation efforts towards achieving organizational objectives.
Quota Attainment – measures the percentage of a sales quota that has been achieved by an individual or team within a given timeframe. It provides insights into sales performance, identifies areas for improvement, and informs incentive structures based on actual results.
Quota Relief – involves adjustments made to sales quotas due to extenuating circumstances or unforeseen challenges that may impact sales performance. It aims to ensure fairness and equity in goal setting, considering external factors that could affect sales outcomes.
Ramp-Up Period – refers to the initial timeframe for a new salesperson to acclimate to their role, build relationships, and start generating sales. It allows individuals to familiarize themselves with products, processes, and customers, enabling a smooth transition into their sales responsibilities.
Recurring Revenue – represents income generated at regular intervals from ongoing customer contracts, subscriptions, or service agreements. It provides a predictable revenue stream for businesses, enhancing financial stability and long-term sustainability through customer retention.
Residual Commission – is a form of ongoing commission paid to sales representatives for repeat sales, renewals, or additional purchases made by existing customers. It incentivizes sales teams to focus on customer relationships and retention, driving long-term revenue growth.
Revenue Recognition – is the accounting process of recording revenue when it is earned, regardless of when payment is received. It adheres to accounting principles to accurately reflect the revenue generated by a company during a specific period, ensuring transparency and compliance.
Rev Ops/Sales Ops (Revenue Operations/Sales Operations Department) – A team focused on optimizing the efficiency and effectiveness of the sales process, including strategy, technology, and analytics. This department ensures that sales teams have the tools and data they need to achieve their targets and drive revenue growth.
ROI (Return on Investment) – A measure used to evaluate the efficiency and profitability of an investment, calculated by dividing the net profit by the initial investment cost. ROI helps businesses assess the financial return on various projects and initiatives, guiding decision-making.
Roll-Up – involves the process where sales credit is passed up from one level to another in the sales hierarchy. It recognizes the collaborative effort and contribution of individuals or teams towards achieving sales objectives, fostering a culture of teamwork and shared success.
Sales Achievement – The actual sales made by a salesperson or team compared to their set targets, indicating performance levels. Achievements are often measured as a percentage of the quota, reflecting how effectively sales goals are met and guiding adjustments in strategy and motivation.
Sales Budget – The allocated budget for sales activities, outlining the financial resources available for sales operations, including salaries, commissions, marketing expenses, travel costs, and other related expenditures. The sales budget helps ensure that the sales team has the necessary funding to achieve their targets and support business growth.
Sales Commission – A form of variable pay directly tied to sales performance, where salespeople earn a percentage of their sales revenue. Commissions serve as powerful motivators, aligning sales reps’ interests with company revenue goals, and rewarding successful deal closures.
Sales Compensation – The total earnings a salesperson receives, comprising base pay, commissions, bonuses, and other incentives. It is designed to motivate and reward sales activities, ensuring financial stability through base salary while driving performance with variable pay components.
Sales Efficiency – The ratio of sales output to input resources, indicating how effectively a sales team utilizes its resources to generate revenue. Higher sales efficiency means that the team is able to achieve more with less effort and expense, reflecting optimal performance and resource management.
Sales Expense – The total cost associated with generating sales, including salaries, commissions, marketing costs, travel expenses, and other related expenditures. These expenses are crucial for driving revenue but need to be managed carefully to ensure they do not erode profit margins.
Sales Forecast – The projected sales for a future period, based on historical data, market analysis, and sales trends. Accurate sales forecasts help businesses plan their inventory, budget, and resource allocation, ensuring they can meet customer demand and financial goals.
Sales Funnel – The sequential stages a potential customer goes through, from initial awareness to final purchase. Each stage—such as prospecting, qualifying, proposing, and closing—represents a step closer to converting a lead into a paying customer, crucial for managing and forecasting sales efforts.
Sales Incentive – Motivation or reward to encourage sales performance, often in the form of bonuses, commissions, prizes, or recognition. Sales incentives aim to boost morale, increase productivity, and drive higher sales results by providing tangible rewards for achieving specific goals.
Sales Incentive Plan (SIP) – A structured plan to reward sales performance, outlining the criteria for earning incentives, such as commissions, bonuses, or other rewards. A well-designed SIP aligns salespeople’s goals with the company’s objectives, motivating them to achieve higher levels of performance.
Sales Management – The process of overseeing and directing a sales team, including setting sales targets, developing strategies, providing training and support, and monitoring performance. Effective sales management ensures that the team is motivated, productive, and aligned with the company’s goals.
Sales Performance Incentive Fund (SPIF) – Short-term, tactical incentives aimed at boosting specific sales activities or product promotions. SPIFs are often used to stimulate immediate results, drive competition among sales reps, and clear inventory, typically resulting in increased sales focus and energy.
Sales Pipeline – The collection of sales opportunities at various stages of the sales process, providing a visual representation of where prospects are in the buying journey. Analyzing the pipeline helps sales managers forecast revenue, identify bottlenecks, and allocate resources effectively.
Sales Playbook – A comprehensive guide that outlines best practices, strategies, and tactics for sales teams to follow. Sales playbooks provide detailed instructions on how to handle various sales scenarios, helping sales representatives improve their performance and achieve better results.
Sales Process – The structured series of steps that sales teams follow to convert prospects into customers. A well-defined sales process includes stages such as prospecting, qualifying, presenting, handling objections, closing, and follow-up, helping ensure consistent and effective sales efforts.
Sales Quota – A predetermined sales target assigned to a salesperson or team over a specific period. Quotas drive performance by setting clear, measurable goals, encouraging sales efforts, and serving as benchmarks for evaluating success and determining commission payouts.
Sales Stage – Different phases in the sales process that a potential deal passes through, such as lead generation, qualification, proposal, negotiation, and closing. Understanding sales stages helps in tracking progress, managing pipelines, and optimizing sales strategies for better conversion rates.
Sales Target – The specific sales goals set for a salesperson or team to achieve within a designated timeframe. Targets are used to drive focus, measure success, and determine compensation, ensuring that sales efforts align with overall business objectives and growth plans.
Sales Territory – A defined geographic or market area assigned to a salesperson, where they are responsible for generating sales. Territories help organize sales efforts, ensuring comprehensive market coverage and reducing overlap, thereby optimizing resource allocation and market penetration.
SDR (Sales Development Representative) – The SDR is the sales professional responsible for identifying and qualifying potential leads through outbound prospecting. SDRs play a critical role in the sales process by generating initial interest and setting up meetings for more senior sales representatives to close deals.
Spiff – A short-term sales incentive designed to motivate sales personnel to achieve specific targets or sell particular products. Spiffs are often monetary bonuses or rewards given to salespeople for hitting short-term goals or promoting specific items.
Split Commission – The division of commission between two or more sales reps who have contributed to closing a deal. Split commissions promote teamwork, fair compensation, and collaboration, recognizing the combined efforts in securing sales and fostering a cooperative sales environment.
Step Commission – A commission structure with varying rates at different sales levels, rewarding incremental sales achievements. Step commissions incentivize sales reps to continually push for higher sales volumes by offering progressively higher payouts as they reach new sales milestones.
Tiered Commission – A commission system where rates change based on sales volume, with higher sales leading to higher commission rates. This structure motivates sales reps to exceed their quotas by offering increasing rewards for greater sales achievements, thus driving revenue growth.
Total Contract Value (TCV) – The comprehensive value of a customer contract over its entire term, including recurring and one-time charges. TCV helps businesses understand the full financial impact of deals, aiding in revenue forecasting, budgeting, and long-term financial planning.
Up-Sell – The practice of encouraging existing customers to purchase additional or higher-value products or services. Up-selling enhances customer value, increases revenue per customer, and leverages existing relationships to drive incremental sales growth.
Variable Remuneration – It includes all forms of pay that vary based on performance, such as commissions, bonuses, and incentives, designed to motivate and reward employees for achieving specific business objectives.
Win Rate – The percentage of sales opportunities that result in closed deals, reflecting the effectiveness of the sales team and strategies. High win rates indicate successful sales tactics and strong market positioning, while low rates may signal a need for strategic adjustments.
Weighted Sales Pipeline – A sales pipeline where opportunities are assigned probabilities based on their likelihood of closing. This method provides a more accurate revenue forecast by considering the potential value of each opportunity, allowing better resource allocation and strategic planning.
