How to Build the Right Sales Compensation Plan for a Small Business | RevWorks
If you’re running a small business, hiring your first salesperson — or fixing a broken compensation plan — can feel tricky. Pay too much in salary and you might be covering someone who isn’t producing. Pay too little and you risk turnover, missed opportunities, and losing good talent to competitors.
The right compensation plan is one that makes sense for your numbers, motivates your team, and still protects your margins. Here’s how to think about it — and why having expert help can save you from expensive trial and error.
1. Start With Your Numbers
Before you set pay, you have to know your math:
Average deal size: How much revenue does each job or contract bring in?
Gross margin: What’s left after costs — labor, disposal fees, materials?
Sales goal per rep: How much revenue should one salesperson generate per month or year?
For example, if your rep needs to generate $400,000 in annual revenue to be profitable, you can back into a plan that pays them $80,000–$100,000 for hitting target.
Why this matters: Most small businesses skip this step, throw out a “fair” salary, and hope it works. But a plan built without knowing your numbers usually leads to either paying too much for too little production — or burning out your sales team with unrealistic expectations.
2. Get the Base Salary Right
Base salary is where many small businesses make a costly mistake. Too high, and your salesperson has no urgency to sell. Too low, and they’re living on commission checks that might be inconsistent, leading to frustration and turnover.
A good rule of thumb: keep the base salary enough to cover stability (roughly 40–60% of expected total earnings) but not enough for them to coast. If your target total earnings are $80K, a $35K–$45K base paired with commission can keep them motivated without starving them.
Consultant insight: This is where outside help pays off — finding the sweet spot between base and commission that matches your industry, deal cycle, and margin structure isn’t one-size-fits-all.
3. Use Commission to Drive Behavior
Commission is the lever that drives performance. It should be directly tied to measurable outcomes — ideally revenue or profit.
Common approaches include:
Flat % of revenue: e.g. 5–8% of every sale. Simple, clear, easy to understand.
Tiered commission: higher % if they hit 100%, 120%, 150% of goal — pushes reps to go beyond quota.
Margin-based commission: protects profitability by rewarding high-quality deals, not just discounted closes.
Example: A rep earns 5% up to $300K in sales, 7% between $300K–$400K, and 10% above $400K. This structure incentivizes them to push for stretch goals and focus on profitable deals.
4. Keep It Simple and Transparent
If your salespeople can’t calculate their own commission quickly, they won’t be motivated by the plan. Confusion leads to distrust — and distrust kills motivation.
Your plan should fit on one page and pass the “napkin math test.” A rep should be able to look at their pipeline and roughly know what they’ll make if they close those deals.
5. Reward Retention, Not Just the First Sale
For contract-based service businesses, the first sale isn’t the only sale that matters — renewals are where the real profit is. If you pay reps only for new business, you may encourage a “churn and burn” mentality where they close bad-fit deals just to get a quick commission.
Consider a small residual commission for renewals (even 1–2%) or a bonus tied to customer retention metrics. This keeps reps focused on quality deals that stick.
6. Review and Adjust Regularly
Markets change, margins shift, and what worked two years ago might not work now. A good comp plan is not “set it and forget it” — it needs regular review.
At least once a year, ask:
Are we still attracting the right kind of sales talent?
Are we hitting revenue and margin goals?
Are reps motivated or just coasting?
If the answer isn’t clear, it’s time to revisit your plan.
Why Work With a Consultant?
Designing a compensation plan that motivates your reps and keeps your business profitable isn’t easy. Many small businesses try to wing it and end up with:
Overpaid reps who aren’t producing
Demotivated teams who don’t believe they can hit their goals
Thin margins from discounting or misaligned incentives
A consultant brings an outside perspective, benchmarks from your industry, and a structured approach that gets it right the first time. Instead of guessing, you can roll out a plan that’s fair, motivating, and scalable — without the expensive mistakes.
The Bottom Line
A healthy compensation plan does three things:
Motivates your team to sell more
Protects your margins
Keeps your best reps from leaving
Get this right and you’ll have a sales engine that grows your business year after year. Get it wrong and you’ll waste time, money, and momentum.
So what’s next?
Not sure if your comp plan is setting your team up for success? RevWorks helps small and service-based businesses design sales compensation strategies that drive growth and keep reps engaged.
