Total target compensation is easy to understand on the surface, but all the complex factors and influences that impact this one metric can make your head spin.

In this article, we’ll define total target compensation and explain how this metric reflects the philosophy and value of your incentive compensation management strategy.

What you’ll learn:

• What is total target compensation?
• Calculating total target compensation
• Why is total target compensation important?
• What is the benefit of using a metric like total target compensation in sales?
• What is the disadvantage of using total target compensation as a KPI?
• What influences total target compensation?

What is total target compensation?

In sales, total target compensation (TTC) refers to the total amount of money a salesperson will bring home if they hit the quotas set for them. This includes all base pay and variable pay (commission and incentive bonuses).

Total target compensation (TTC) is not the same thing as total cash compensation (TCC). TTC covers base salary and variable sales pay, whereas TCC also includes additional incentives beyond traditional sales compensation, such as stock options or profit-sharing.

(Back to top)

Calculating total target compensation

To calculate TTC, simply add base pay and the amount of variable pay a rep would earn if they were to hit 100% of quota:

Base salary + Variable pay (commission + bonuses) for hitting 100% quota = Total target compensation.

(Back to top)

Why is total target compensation important?

Total target compensation is a major building block of most sales comp plans. Even though sales performance is impossible to predict with complete accuracy, it’s important to know precisely what you’ll be paying your sales employees if they hit their specific quotas; this allows you to budget and allocate resources efficiently.

TTC is also important for bolstering transparency between compensation managers and sales reps, who rely on this metric to understand precisely what earnings they’re working towards as they try to hit their quota.

(Back to top) 

What is the benefit of using a metric like total target compensation in sales?

TTC can be used by sales leaders to guide the performance expectations for their teams. While sales quota is a specific target for reps to aim for, TTC clearly shows reps what they’ll earn when they hit 100% quota attainment. 

When recruiting new sales reps, TTC can also be used to ensure you’re offering fair and competitive salaries. If a sales rep at your company’s TTC is significantly lower than a rep in a similar role at a competitor organization, that’s a sign that you might need to take a closer look at your compensation plans.

(Back to top)

What is the disadvantage of using total target compensation as a KPI?

TTC is not guaranteed. Total target compensation is just that — a target. If the quotas that factor into TTC are unreasonable, reps might find that very few sellers actually earn their total compensation.

Put another way: A sales rep could look at a high TTC and think, “Wow, if I hit my quota I’m going to earn a ton of commission and a great bonus.” But what happens when they realize there’s practically no chance they can actually hit that quota? This disconnect between target earnings and actual earnings can negatively impact seller experience, cause sales burnout, and ultimately lead to increased turnover.

(Back to top)

What influences total target compensation?

There are many factors that influence how an organization thinks about TTC for their sales teams, including:

1. Compensation philosophy

On the most macro level, your company’s broader philosophy around compensation trickles down to your sales comp plans.

For example, if your company has what’s commonly known as an aggressive compensation philosophy, they’re more likely to create performance-based commission plans. In other words, the “variable pay” piece of the TTC equation is where reps would be expected to earn most of their money.

2. Commission structure

As part of variable pay, your commission plan design will also influence what ends up being a part of the TTC equation. For example, your plan might only include straightforward commission rates – where reps are paid a set percentage from the deals they close – but also include a significant bonus for reps who achieve 100% commission in a pay period. Or, you might not offer sizable bonuses, but use a tiered commission structure instead, where reps’ rates increase as they close more deals.  

3. Budgets

The budget available for sales compensation will also influence how TTC is calculated. More available money might mean that you pay higher base salaries and your plans include less variable, performance-based pay (commission and bonuses). If you’re a newer organization with a tighter budget, you might rely more on performance-based pay to ensure you’re not at risk of overspending.

4. Revenue targets

Sales goals and sales compensation plans aren’t created in a vacuum; they inform and influence one another. Compensation targets incentivize reps to hit revenue goals and revenue goals allow your company to pay a certain amount in compensation.

5. Employee mix

The makeup and tenure of your sales employees can also affect how much weight certain factors carry in the TTC equation. For example, the target compensation for a brand-new sales rep might primarily come from their base salary, because you’ve given them a very low quota.

(Back to top)

Consider all the critical factors that impact your compensation

Calculating TTC may appear simple, but juggling all the priorities and philosophies that influence TTC is anything but. When you look at TTC, make sure it aligns with your business’s goals and paints a realistic picture of your sales team’s earning potential.