When trying to identify the right commission structure, design, and payment method for your sales organization, remember this: the plan needs to start by being aligned with the values, culture, and strategy of the company to ensure that the reps are selling what you want them to sell, in the volume you want them to sell it, and to the customers you have targeted. Equally important is that the reps are highly motivated to make it happen.
The sales compensation plan can also encompass areas that are mission critical to the organization such as customer satisfaction metrics, longer-term contracts and customer retention. Your compensation plan can be individual based or team based or a hybrid of the two. I think they can work equally well depending on the circumstances.
There are some who believe that sales compensation is an outmoded way to pay sales people, I beg to differ in most cases, I will cover that discussion in a separate Blog post-it’s very important but too much to cover here !
The compensation plan should be a collaborative effort from sales, marketing, and finance. It is much better received when the sales organization is engaged from the beginning to ensure it is bought in and it is going to meet the objectives of the organization.
I recall more than one instance where a compensation plan was launched without sales input and there were glaring challenges that ended up derailing many meetings and slowing sales momentum with a lot of water cooler talk about how the compensation plan is not working or is flawed in one way or another.
My experience suggests that time after time if you engage some sales representation in input to how you pay them or how you want to change how you pay them, that input can help prevent many potential mine fields. I have witnessed this first hand more than once.
I have been engaged in many compensation committees, designs, plan development, and implementations. The best experiences were in situations where the sales group was engaged along the way.
I experienced one organization whose compensation plan was the most complex I have ever seen in my entire career in sales. There were way too many gates to reach to make plan, and it took an inordinate amount of time to fully understand how you were getting paid. This was a recipe for disaster,and resulted in a sales team that was not fully engaged.
10 suggested rules to follow in the overall thought process when developing a sales compensation plan;
1) The compensation plan needs to be in keeping with the overall objectives, culture, and strategy of the organization.
2) Ensure the plan is in sync with your company’s marketing efforts and go to market strategy, its critical that sales and marketing be aligned and one way to do that is thru compensation (entire separate discussion warranted on this topic).
3) The plan needs to be within the company’s budget and be able to be launched from a systems perspective.
4) Base versus upside comp needs to be determined, how aggressive do you want the upside vs base pay. Do you pay on sales or margin (separate discussion altogether)?
5) The plan should be clear and simple; the sales force should not need a financial analyst or a lawyer to help them figure out how they are going to get paid. Believe me, I have seen examples of this.
6) The design of the plan should be different for different types of sales roles. A hunter or business development role or builder/farmer should each have a different plan. Gaining a new client is much different from retaining and growing an existing client and the plan should reflect that difference. A territory rep plan should be different from a major account management rep plan.
7) The plan should be clearly measurable, meaning the reps should be able to understand that if they sell x they will earn y. There is no place for ambiguity in a sales compensation plan.
8) The plan needs to be motivating, the reps should to be able to review it and say to themselves, “yes I understand this”, “I know why the company structured it this way”, “I know why they want to pay me this way”. “I get it and I know what I have to do to earn the income that I signed up for and potentially more on overachievement”.
9) The plan can include professional behavior or performance management elements, it can include a team element if that is deemed important as well.
10) The plan should also be timely. This means a couple of things;
a) The plan should be launched prior to the new selling year or as a minimum, in conjunction with the new selling year. The sales force should know right from the get-go in the new year how they are going to be paid. There should be no guessing, conjecture, or hearsay.
b) Payment should be made in a timely fashion, either soon after the month closes for a monthly plan or soon after the closing of a sale. If paid on billed revenue than as soon after the bill is sent as possible.
c) Any disputes or issues should be dealt with rapidly. Don’t nickel and dime the sales force, it will demotivate the reps.
When it’s time to launch the compensation plan there should be a well thought out launch plan. Issuance of the documentation (the actual plan), including examples, a presentation and review session from management, or the compensation plan owners explaining in detail how the plan works using examples, the rationale behind the plan, along with Q and A.
For more information, suggestions, and insights into sales compensation and other sales organization imperatives see my website, www.streetsavvysalesleadership.com, and/or order my book The Street Savvy Sales Leader, A Guide To Building Teams That Consistently Win New Business.
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