To answer this question let’s assume a few things about your business. Picture a hungry marketplace where customers want what your team is selling. Your sales team is being fed qualified leads. Let’s also assume operations are running smoothly and customers are happy. The sales team handles current accounts incredibly, but you need to expand your business and it just isn’t happening. You find yourself asking “How do I design sales compensation that drives the right behavior”?
First you need to understand your business completely. Where does your revenue come from? What’s the customer and product mix needed to meet growth goals? How does your team most effectively sell to the targets you need to be closing?
Once you understand the answers to those questions you can establish a smart compensation plan that incentivizes the right behaviors. To gain adoption, you’ll want to ensure the salespeople buy into their comp objectives and believe they can achieve the goals you are setting out for them.
Finally, the most important thing is to have clear performance visibility so you can act fast to correct any issues. What is a small gap in revenue growth now can balloon to major missed milestones down the road. Let’s break down the steps further.
Establishing Clear Company Objectives
A clear understanding of the business is required in order to set out the right goals for revenue. Does your business have a busy season or is it reliable consistently throughout the fiscal year? It’s unfair to expect busy season production during slow times so plans should reflect that fluctuation. The goals for your sales team should reflect the realities of your industry.
The biggest thing to understand is where your prime new customer opportunities are and how to ensure you keep and grow your current accounts. Look at your customer base and figure out what can be counted on for residual revenue and what reasonable account growth goals should be. From there you can assess the amount of net new business needed to achieve your company goal.
Another critical step is involving departmental stakeholders so all key leaders understand what the sales team is being motivated to pursue. It’s common that internal roadblocks arise when sales activity shifts to drive increased focus on a certain product, service, or customer segment. Your leadership team needs to be aligned on how to position your salespeople to achieve their goals.
Designing The Right Sales Compensation Plan
While I’d love to give you a simple formula to just plug in and run with, the fact is that the answer to this question is different for every business and industry. A few things do ring true no matter what you sell so there are some general rules I can share to guide you.
One thing to account for is a cushion between your company revenue goal and total quotas assigned to your sales team. This allows for a buffer in the event of rep turn-over and the likelihood of less tenured reps periodically missing their target. The key here is that quotas are set reasonably based on revenue history increases and/or proven market growth. If your salespeople don’t believe their Quotas are obtainable, they will not be motivated properly.
Another core objective is to design comp plans with accelerators. Incentivize your salespeople to perform not only every quarter, but each and every day! For example, if they hit their quotas before the deadline, let them earn a higher commission on the rest of their sales. Or allow for a bonus if key activities are achieved that have a strong contribution to pipeline growth such as certain outreach activities or product demonstrations. Accelerator ideas are endless but it’s important to keep them simple for your salespeople to understand and for you to track.
Most important is making sure you are getting your team excited about the goals you are setting. Help them believe they can reach them and create a sales environment they can excel in! Give your top performers what they need to continue crushing it. If you don’t, your competition will.
Creating Score Card Visibility
Shine a spotlight on the key sales activities that attribute to closing deals. I refer to these as the dials and levers that control sales success. While some of these activities may be tied to the Sales Comp Plan, all need to be clearly visible on a sales score card and readily accessible as a sales management tool.
During 1:1 meetings discuss each salesperson’s progress against their scorecard. Uncover where they are lagging and what they are doing well to guide the “right behavior” you’re looking for. Help them connect the dots on how they are tracking to what their payouts are going to be. Make sure you hit on your key compensation plan elements like new customers added or which specific products they need to be selling to hit comp accelerators.
This might seem obvious but it’s surprising how often a company will overlook the important step of creating clear sales performance visibility and then apply effective sales management to utilize it as a working tool. Too often I hear salespeople say they feel blindsided when their commission checks don’t match what they thought they produced, or, that they have no idea what they are earning until they get it.
If your salespeople don’t have clear visibility on how they are tracking to their compensation goals, they will not be motivated with the right behaviors to achieve them.
In cases when your salespeople are hitting all the score card activities but you’re still not seeing desired revenue results, then you need to head back to the drawing board. There’s likely a breakdown in your sales process or potentially you aren’t placing focus on the right activity dials and levers to drive the right sales behaviors in your industry.
Don’t Hesitate, The Time to Act Is Now
If you uncover a gap in your compensation plan, or a lag in growth of new accounts, the time to act is immediately. That gap is only going to get bigger as the year goes on and your best bet is to address the problem as soon as you can. You can’t afford to let a flawed compensation plan be the thing that causes you to miss your company goals.
Key Takeaways
- Establish clear sales objectives including new customers needed
- Design a compensation plan that motivates the right behaviors and provides the right incentives
- Build a sales scorecard that measures key activities and manage against it
If you have not done all of the above, the time to fix it is now!
If you’d like to discuss what’s going on in your business, I’d be happy to shed light on options to fix the breakdown areas. Contact me at 321.229.8910 or [email protected].
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I am part of a national group of Senior Sales Leaders who collaborate to share insights like the examples shown in this article. We formed because of our shared passion to help business leaders exponentially grow their revenue.