My colleague Mike Martin recently blogged about how so many companies aiming to create a simple sales incentive plan end up mired in complexity. I’d say that’s the biggest issue that companies face with their sales incentive plan these days. Go to any conference and speak with any sales comp professional and you’ll hear the same thing: Incentive plans are too complex for sales reps to understand. This has been the case for several years now.
If everyone agrees that plans are too complex, why aren’t companies simplifying them? The short answer is that they don’t know how to get there. It’s the equivalent of telling someone to go to 123 Main St. without giving him a map or directions—or a GPS-enabled smartphone—and continually telling him that he’s lost isn’t helping.
Too many times, when companies try to simplify their plans, they start with their current plans. Companies try to remove metrics, delink metrics, etc., in an effort to rejuvenate rather than reinvent, but when one thing is removed, an integral link might be broken or the original intent of the plan is no longer achievable.
Rather than starting with the current plan design, start with its guiding principles and build from there. For example, if a company’s guiding principles include something like “drive high-margin product sales,” the company could create an incentive based purely on gross margin dollars vs. a quota. Another option might be to split the product basket up into “high-margin,” “average-margin” and “low-margin” products, and pay on revenue according to which product basket you’re in.
A third option is to assign every product a commission rate based on its relative margin to the company. This issue can get complicated as the sales “bag” grows, given the fact that assigning a rate to every product line would make the incentive plan extremely complex.
Don’t constrain your thinking by trying to build off of the current plan. Start from scratch, leveraging the guiding principles and plan objectives to develop many plan ideas.
And as you work with your design team, present the plans in order from simplest to most complex. That way, you will “anchor” the group, and with each successive complexity added on, it’ll be easier to debate whether the increased complexity can be understood by the sales team, and whether it’ll bring the desired business results.
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