Tie Sales Compensation Plans to Your Company’s Mission
I first heard the phrase "Sales reps are coin-operated" from a sales vice president I worked for early in my career. I remember laughing at the image of pumping quarters into this inanimate sales guy only to have him come alive and race out to make a sale. Most salespeople go into sales because of their ability to overachieve financially, and corporations could significantly improve their results by leading sales resources with targeted compensation plans.
Top-earning sales reps dissect their compensation plans to understand exactly how they can maximize earnings. Are there specific bonuses for selling certain products, services, lengths of contract, references, new accounts, profit levels?
Once they intimately understand their pay, they develop their sales plans around what they are going to sell to whom to maximize earnings. Top sales reps, by definition, have good relationships with their customers. This relationship affords them influence to shape the combination of products and services that their customer purchases.
As such, it is vitally important for an organization to be very prescriptive in how it creates and administers the sales compensation plan. A well-designed plan can ensure the sales organization focuses on results that directly support corporate initiatives. Here are four guidelines to follow:
- Stack rank the three initiatives that will drive the compensation plan. Some examples include: grow market share; increase deal profitability; expand deal size with cross-selling; replace products that are costly to support; acquire new accounts; renew existing accounts; and gain longer-term commitments. Ranking these initiatives will allow you to design a plan that rewards outcomes that align only to these goals. In addition, it sends a clear message to the organization at large of your sales focus, which will allow supporting resources to align to help jointly reach those goals.
- Make sure that goals don't conflict with each other. For instance, if you're trying to grow market share, you may be willing to take deals at a reduced price or profitability to get in the door. This would conflict with the goal of increasing deal profitability. It would be in concert, however, with the goal of acquiring new accounts or expanding deal size with cross-selling. In addition, make sure departments don't have conflicting goals. If sales gets paid the same on deals regardless of profitability, it'll have no incentive to demonstrate the value of a higher price and ensure service delivery has sufficient costs built in to meet its goal of being on budget. If service delivery has compensation tied only to achieving service levels and not tied to closing deals, it may tolerate no risk and insist on a cost budget that could increase the customer price to an uncompetitive level.
- Provide incentives to departments that directly support sales results to create team wins. Determine which departments have direct involvement and influence on the sale and work out an incentive for those teams. Depending on your specific sales process, those teams could be service delivery, finance, marketing, customer support, and so on. The incentives don't need to be significant since individuals in these departments are paid salaries. But it's important to provide some reward to encourage a focus on the common goal, a sense of urgency for deliverables, and the interdependency and joint contributions that lead to a cross-functional win.
- Pay only for results and active involvement in closing business. Pay the people who do the work! I am amazed to see organizations pay many people on a win when some of them have little or no involvement, which reduces compensation for the individuals who are really responsible. Structure the sales organization so that only a few individuals are responsible for any win, hold them accountable for results, and pay them well when they achieve them.
Like it or not, the sales organization drives your business, and they determine what gets sold and at what price. Use your sales compensation plan to point sales resources in the direction the corporation wants them to go. By lining up your sales team's road map to financial success with the achievement of the corporation's annual objectives, you'll see all boats rise with the tide.
Paul Harney (firstname.lastname@example.org) is an independent sales process consultant who uses his vast sales experience to help companies close the disconnects between sales infrastructure, the opportunity pursuit process, and customer value creation.