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Variable compensation is a key part of sales compensation plans. It is the part of a salesperson’s earnings that changes based on their performance. Unlike a fixed salary, which stays the same each month, variable compensation rewards employees for meeting or exceeding goals. It is one of the best ways to motivate employees and improve sales performance.
Why Variable Compensation is Important for Sales Teams
A strong variable compensation plan helps companies in many ways:
- Motivates sales reps: When salespeople see a direct link between effort and earnings, they work harder.
- Attracts and retains top talent: High performers want a pay structure that rewards their skills.
- Aligns with business goals: The right compensation plan drives behaviors that help the company grow.
- Encourages competition: A well-structured plan creates healthy competition among sales reps.
Common Types of Variable Compensation in Sales
There are many ways to structure variable compensation. The best plan depends on company goals, sales cycles, and industry. Here are some common types:
| Type | Definition | Example |
| Commissions | A percentage of each sale goes to the salesperson. | A rep earns 10% on every deal closed, so a $10,000 sale brings in $1,000 in commission. |
| Performance bonuses | Lump-sum payments given for hitting targets. | A rep who exceeds their quarterly quota by 20% earns a $5,000 bonus. |
| Profit-sharing | Sales reps receive a portion of company profits based on performance. | A company sets aside 5% of profits to distribute among top-performing sales reps. |
| Sales contests and incentives | Short-term rewards for reaching specific goals. | The highest seller of the month wins a luxury vacation. |
| Accelerators | Higher commission rates after passing a certain quota. | A rep earns 5% commission on the first $50,000 in sales and 10% on sales beyond that. |
| Spiffs | Short-term bonuses for selling specific products or services. | A company offers a $200 bonus for each upsell of a new product. |
| Retention bonuses | Bonuses given to sales reps who stay with the company for a set period. | A salesperson receives $10,000 after staying with the company for three years |
| Team-based incentives | Rewards for overall team performance, encouraging collaboration. | A sales team hitting a combined quota gets an extra $1,000 per member. |
| Sales incentive programs | Structured plans that reward sales reps for achieving milestones. | A company implements a program where top performers receive quarterly bonuses. |
| Sales bonus structure | A detailed breakdown of how bonuses are earned based on revenue, deals closed, or customer retention. | A company offers different bonus levels based on revenue brackets. |
How to Design an Effective Variable Compensation Plan
A good variable compensation plan should be fair, motivating, and aligned with company goals. Here’s how to create one:
- Define clear goals – Ensure sales reps know what they need to achieve to earn incentives.
- Keep it simple – A complex plan confuses employees and reduces motivation.
- Use the right pay mix – Balance base salary and variable compensation to match the sales cycle and industry.
- Provide real-time tracking – Sales reps perform better when they can see their progress toward earnings.
- Review and adjust regularly – Sales environments change, so compensation plans should evolve too.
Examples of Variable Compensation in Action
Tech company with a long sales cycle
A software company sells large contracts that take months to close. Their sales reps have a 70/30 pay mix, meaning 70% base salary and 30% variable compensation. This provides stability while still rewarding performance.
Retail sales team with daily transactions
A retail chain pays a base salary plus spiffs. Sales associates earn a $50 bonus for each high-margin product sold, encouraging them to focus on profitable items.
SaaS startup scaling quickly
A SaaS company wants rapid customer growth. They implement an accelerator plan where sales reps earn 5% commission up to $100,000 in revenue and 10% on any revenue above that. This pushes reps to exceed quotas.
B2b company focused on team success
A logistics firm rewards collaboration with team-based incentives. If the whole team exceeds its quarterly target, each rep receives an extra $2,500. This encourages teamwork and shared success.
Maximizing Efficiency with the Right Tools
Managing variable compensation manually can be overwhelming. Errors, inefficiencies, and lack of transparency often create frustration for both sales reps and management. Remuner automates the entire process, eliminating administrative headaches, ensuring real-time tracking, and providing complete visibility into sales performance.
By using Remuner’s sales commission efficiency calculator, you can instantly see how much time and money your company can save. Don’t waste resources on outdated manual processes—optimize your compensation plan and maximize your revenue today. Try the commission efficiency calculator now.
Ready to optimize your sales compensation plan? Explore Remuner, the leading sales compensation software, to automate and optimize your compensation plans with real-time data and AI-based coaching.
FAQs about Variable Compensation
1. What is the difference between variable compensation and fixed salary?
Fixed salary stays the same regardless of performance, while variable compensation changes based on sales results and other performance metrics.
2. How do you determine the right mix of fixed and variable compensation?
The right balance depends on factors like sales cycle length, industry standards, and company goals. A typical mix for sales reps ranges from 50/50 to 70/30 base-to-variable pay.
3. What are the best practices for structuring variable compensation?
Keep it simple, align it with business goals, provide real-time tracking, and review it regularly to ensure effectiveness.
4. Can variable compensation apply to non-sales roles?
Yes, it can be used for customer service, marketing, and executive roles, often in the form of bonuses and performance-based incentives.
5. What happens if a salesperson doesn’t meet their quota?
They might earn only their base salary, or they may receive a reduced commission based on a tiered compensation structure.
