eBusiness Weekly
Robert Gonye
We can all agree: Money changes the way we act. It’s arguably one of the greatest motivators. In fact money amplifies who you are and gives you voting power. In sales, it can incentivise teams to work harder to close more deals, meet their numbers, and even adapt to new sales systems. If set correctly, incentives can have a positive effect on your team’s behaviour and overall performance.
But if all your sales teams care about is making money and winning prizes, your customers are going to catch on. Quickly.
The commission, bonuses, and sales performance incentive funds quarterly targets and Bonus (MIPS) you thought were inspiring your team can become more harmful than helpful if reps put their numbers ahead of their customers, who can feel pressured to buy.
The reality is that most companies offer sales incentives — you should too. However, put the customer first, compensate the reps for doing the same. But this takes time, a thoughtful approach, and the support of your entire company.
However, there’s no one correct, catch-all way to inspire your sales team. It depends on your business and what you ultimately want to achieve. That flat screen TV or generator aren’t your only options. There are countless other strategies to motivate your reps. Due to the length of the subject we will tackle it in phases. On what it is, how it works and what it should deliver.
How sales compensation should work
A sales compensation plan operates from a basic principle: Money drives behaviour. That is to say, if you want your salespeople to do X, reward them financially for doing X. If you want them to stop Y, penalise them financially for doing Y.
For instance, if you want your reps to prioritise renewals over new business, give them a bigger commission for the former. If you want them to stop selling to poor fit customers, institute a claw back so they lose their commission if the customer churns or returns the product within a set window of time.
The “right” and “wrong” behaviours depend on your high-level company goals. So before you can craft or adjust your sales compensation plan, you must know your business objectives for the next year.
Primary vs secondary goals
While they need to achieve target, it’s important to distinguish the primary goals versus the secondary as follows Grow revenue; Increase cash flow; Increase average contract length; Increase average deal size; Increase percentage of repeat customers; Increase retention rate; Increase upsell/cross-sell rate.
Secondary goals on the other end will then include, Acquire well-known customer Accounts; Lower expenses; Drive sales for specific product; Increase number of specific customer type; Reduce discounting frequency; Reduce average discount size; Acquire “seed” accounts or Manage deal flow
What’s important is using at least two from each tier and they implement them to the final end.
Keeping sales comp plans effective
The more variables you introduce to a sales comp plan, the likelier you are to unintentionally promote competing behaviours. You also make it harder for your reps to understand how they’ll be paid — meaning they’re less inclined to go in the direction you’re intending.
With that in mind, use two to three variables. Grasping the fixed, variable, and/or base percentages should be easy. Not sure if your plan fits the bill? Time yourself explaining the plan to a salesperson. If it takes more than one minute, you probably need to simplify.
And don’t worry that cutting out one of your terms will make it harder to hit a specific goal. Sales contests and compensation plans are a great way to drive short-term behaviour changes and can be added to the mix at any time. And next year, when your priorities have probably changed, you can create a new sales comp plan.
Sales sompensation plan examples salary only
With a salary-only structure, you decide ahead of time how much you’ll pay your salespeople. It doesn’t matter how much (or how little) they sell, their take-home earnings are set.
This structure is relatively rare in selling organisations. On the plus side, it’s simple to calculate sales expenses and predict hiring needs. In addition, reps may be less stressed because they don’t have to worry about the financial consequences of missing their target. You will probably see greater loyalty from your employees.
Yet without commission, reps are usually less motivated to go above and beyond. After they’ve hit quota, they’ll probably relax instead of pushing for the next deal. Many salespeople love the thrill of scoring commission — that’s why they got into sales in the first place. Watching average performers receive the same pay is typically demotivating. Finally, your best reps will probably leave so they can make more elsewhere.
Commission only
A commission only structure means you pay reps purely based on performance. If they sell nothing in a month, their salary is zero. If they sell $50 000 worth of business in a month, their salary could be anywhere from $5 000 to $10 500, depending on the commission percentage.
This approach has both pros and cons. As the employer, you’re forgoing a lot of risk. When your salespeople succeed, revenue increases. When they fail, you lose nothing.
You’re also giving reps the freedom to earn as much money as they can — which is highly motivating. And poor performers are unlikely to stick around long.
However, paying commission only makes it challenging to forecast your expenses and stick to a budget. Salespeople are demotivated to do anything but sell, so good luck asking them to attend meetings, log notes, go to training, etc. Finally, you may unintentionally encourage “anything goes” tactics such as lying, manipulating, and other behaviour that’ll give your company a bad name.
Next week we discuss the other models available and see what works for you and how best to manage your teams.
The views given herein are solely for information purposes; they are guidelines and suggestions and are not guaranteed to work in any particular way.
Robert Gonye is a Business Growth Expert and Influencer. He writes in his personal capacity. Comments and views: [email protected] twitter@robert_gonye
