So what is new in the world of sales compensation? In a way the more things change, the more they stay the same. Fundamentals don’t change and as such they are always a good place to start.
There are at least nine components to successful sales compensation design. There is a post (9 Key Steps to Sales Compensation Design) that lists these steps for your reference. In this post we will examine Key Step #3 “Define the sales reps’ role” in greater detail.
As you approach your new sales plan design, and before any percentages are assigned or incentives are in place, take inventory of where you stand by asking these questions first.
What roles do your sales people play in the sale?
What roles do they play in addition to selling?
How involved are they in administrative tasks such as running quotes, estimating, proof runs, monthly billing, etc?
What do these tasks cost directly (e.g. salary, expenses, benefits) and indirectly (e.g. missed opportunity cost, inappropriate use of resource and skills)?
Do you want to encourage them to do more or fewer of these tasks? There isn’t a right or wrong answer really, as it depends on your objectives. Just an illustration of how thoroughly you need to understand the function of your sales team before you can design a fair compensation package. Fair to them and to the company.
A well-designed compensation program encourages and rewards the right activities. What do you want your compensation program to accomplish? Do you want to encourage them to perform more administrative tasks? Find new accounts? Find profitable accounts? Increase margins?
The marketplace is much different than a few years ago and as such, it is a component worthy of serious consideration in the design of your sales compensation plan.
Do you know what your customers want from the sales process? They ultimately choose how and with whom they want to do business, so why not ask them?
Once you have identified the optimum sales channels for your existing and prospective customers you can begin to reshape your approach to the marketplace (brokers, agencies, inside sales, direct sales, national or major accounts, corporate vs. agency, e-commerce, etc.) and design appropriate compensation.
What role do you want to your sales team to play in their interaction with existing and prospective customers?
This is a key question to ask before designing the compensation plan to ensure that the plan encourages the proper activity and consequently achieves the desired results.
Are all of your sales people asked to focus on the same objectives? Are some more specialized than others? This is a serious consideration, as the sales person “maintaining” existing business would most likely need a compensation plan that is different than the sales representative who is “developing” new business. Especially if the new business was to come from strategic accounts that might have longer sales cycles.
To be more effective, the sales compensation plan should reward more than just revenue. It should take into account accomplishment of activity that would lead to long-term success for the sales person and the company. A list of these activities needs to be compiled, given priorities and then shared with the sales team. Once it is agreed that these activities positively contribute to achieving company objectives, they should be included in the compensation plan.
Another consideration would be whether all products and services your sales team is asked to sell are compensated at the same level. Keeping it all the same, when it is better not to, is a trap we sometimes fall into in an effort to keep the plan as simple as possible.
Products and services that make greater contribution to profitability, or to market penetration, or to meeting predetermined strategic objectives, should be compensated differently than the low margin, easy to sell, tough to produce alternatives.
So, do customers influence the way you compensate your sales team? Should they? Does the marketplace you compete in influence their compensation? Should it?
The answer to these questions is a resounding YES. The challenging part is to design a plan that will take these issues into account without at the same time being an administrative nightmare.
How do we convince the sales compensation plan administrator to accept the additional complexity such an inclusion could introduce?
The first, and very important, point to be made is this. If as a result of a more “sophisticated design” the desired results are achieved, it would be worth the effort.
The second point, equally important is this. The plan does not have to be overly complex. Just thorough on the metrics it uses to compensate. The mantra of sales compensation design has always been “keep it simple”. And it is good advise. The plan should be simple but not to the detriment of its effectiveness.
So, instead of just looking for simplicity, let’s make sure that the plan is Clear, Concise, and Effective. And this should meet everyone’s objectives.
John Kypriotakis is the President of Lysis International,
a Tampa based Sales and Management consulting firm,
specializing in B2B Sales, Management and Leadership.