Total Target Compensation

Calculating Total Target Compensation

To calculate Total Target Compensation, simply add base pay to the amount of sales commission a rep would earn if they were to hit 100% of quota. See the graphic below:

Why is Total Target Compensation important?

Setting total target compensation is critical in sales roles because it’s a major building block of most sales comp plans. Without a baseline understanding of what a rep’s on target compensation looks like, activities like budgeting, hiring, and managing sales performance may be impacted negatively.

What is the benefit of using a metric like Total Target Compensation in sales?

There are some key advantages and disadvantages when it comes to using Total Target Compensation as a KPI to guide your sales organization. Let’s take a look at benefits first:

• TTC can be used by sales leaders to guide the performance expectations for their team and to develop commission rules for new or existing plans.
• TTC can be used to make sure you’re offering fair and competitive salaries while recruiting new sales reps.

The main disadvantage we’ve found when it comes to using Total Target Compensation is the following:

• If sales organizations use unreasonable or unfair targets to set goals and determine pay structure, they may find very few of their reps actually earn the total compensation promised. This can lead to sales turnover, increased expenses, team disengagement, and sales burnout.

What influences Total Target Compensation?

There are many factors that influence how an organization thinks about Total Target Compensation for their sales teams. Here are a few of the main factors:

• Compensation Philosophy: The broadest context for TTC is the company’s overall compensation philosophy, which is influenced by its corporate culture.
• Commission Structure: Your commission plan design can also influence what ends up being part of Total Target Compensation.
• Employee mix: The makeup of your team—as well as their tenure with the company—can affect how much weight certain factors carry when determining salary for sales teams.
• Budgets: TTC is also impacted by the budget available to an organization. More money may mean a higher base salary and less at-risk pay. Newer companies with less money available may rely on larger percentages of performance based pay to make sure they have the funds available to pay out salaries.
• Revenue Targets: A good compensation structure is based around the financial goals set before an organization.

For most companies, these factors inform and reinforce one another. For example, if you have an aggressive compensation philosophy (e.g., pay based on performance), you’re more likely to create a performance-based commission plan. You’re also more likely to have processes in place to enforce sales behaviors that support your overarching compensation philosophy.