Winning sales compensation plans are the secret ingredient to not just hiring professional sales representatives, but also motivating them to deliver the best performance.
What is a Sales Compensation Plan?
A good sales compensation plan needs to set the expectations for reps with clear goals so they know what is expected of them. There are three essential elements of a sales compensation plan:
Sales Compensation Challenges
Highly credible sales companies understand the criticality of their compensation plans and work efficiently to plan, communicate and monitor those plans. While creating a sales incentive plan, there are a few challenges that many organizations may stumble upon:
The first and foremost thing which every sales rep is keen to understand is what their quota is and how to align it with the sales compensation plan. If the quota does not seem attainable, the plan will eventually not encourage the sales employee to drive the ideal results to the company.
With the rising complexity in businesses, one cannot take the risk of putting anything and everything in the sales compensation plan. While the old plans might have paid on revenue only, present-day plans might not just pay on profits or revenue but on the revenue type too and the type of product. Such combinations can actually weaken the C-level objectives.
It is quite important to have the answers to the following burning questions. Chief executive officers would want to know the answers:
How to Develop the Winning Sales Compensation Plan
While it is daunting to surpass the challenges, but following these highly effective ways will ensure your sales compensation plan drives profitability and growth:
After the compensation team is fully built, outline the base of your plan. To put it more simply, use the ABCs of a sales compensation plan:
Pay mix is the portion of salary and incentive/perks at target goals, which means ‘quota’. The sum of the salary and incentive must be equal to the Total Target Compensation for the job. Pay mix varies by the type of job and several factors that consist of the sales process, type of sale, features, and types of customer.
Always keep in consideration that as sales managers have a bunch more responsibilities than reporting reps, so they should get the less aggressive pay mix. The less aggressive mix aims for 80/20 while the more aggressive mix goes for 50/50 or 60/40.
Upside potential refers to incentives/perks that are available to the top performers, usually the 90%, and usually, it is computed as a multiple of incentives. Upside potential is a crucial element to assist the corporation to hire and retain fresh blood in the industry.
You need to tell about the high performance of the company as it plays a vital role. Also, you need to differentiate the incentive amount for top performers from average performers.
What is a threshold? It is the beginning of accomplishment where the compensation plan starts to pay the incentive. Usually, the threshold means the minimum acceptable performance, beyond which a representative would not be in association with the organization anymore.
In the case of an account executive with a good base of retained business, an organization might have a hard threshold. On the other hand, it may not have a threshold, when there is a business manager for whom every sale brings in another increment.
Performance measures talk about the focus elements that are very essential for each and every role. Each measure must have significant priorities in place of the corporation and that is in the control of the role.
The important element here is to have a goal of three or more measures with no less than 20% weight.
For each and every performance measure, the corporation should set the performance level at which that particular measure will be monitored for the sales compensation plan. For instance, the company may decide on a revenue measure for sales representatives at an individual or region level, whichever exists.
Each performance measure will be evaluated and paid, be it, monthly or quarterly. The decision made for measurement levels and timing can greatly impact the behavior of sales representatives.
Mechanics form the connection between pay and performance. It is the stage where many sales executives would jump first instead of going through the previous steps. Although, mechanics are a little complicated with several rates, gates, hurdles, point systems, accelerators, and the fact that they can be divided into 3 components.
A complete sales compensation plan consists of a wide range of sales and management roles. Plan designs should interface as an all-inclusive team to work with more cooperation as a team.
This team coordination will check for how sellers work with each other in the sales process that comprises: account managers, business developers, product experts, channel partners, and sales support professionals.
All company objectives and quotas must be market-based. It should represent the opportunity in every accounting assignment. Also, it must have a process that is well comprehended by the sales representatives so they can incorporate their inputs at ease.
An excellent governance process works similar to the constitution of the sales incentive plan which progresses from a big set of plans to a rewarding program that helps the organization grow massively.
Not having an excellent approach to governance will make the laws go by all around the year in a reactive mode.
The last step is to execute the compensation plan which is easily comprehended by the sales team. Once executed, your sales compensation plan should be evaluated to see if any changes are required.
Tools for collecting information and monitoring how your plan is working can be very useful. If you observe that there is still scope for change or improvement, then ask yourself these questions:
At the mid-year, monitoring of the sales compensation plan will aid you to decide the ideal with your plan in place.
Understanding how to design a sales compensation plan can help you build a strategy that rewards your sales team for the good results they have delivered. Following this guide will help you create such an agile sales environment that makes sense for your business goals and motivate your sales representatives too.