As you finalize your 2018 sales compensation plan, you likely have a list of guiding principles that steer your plan design decisions, such as fairness, fiscal responsibility and the ability to administer. But two guiding principles stand above all others:
1. Supporting your strategy: All decisions start with strategy, and the decision about how your company competes and wins in the market should drive all downstream decisions. This includes how you go to market, your sales force structure and selling process, the number of salespeople and, of course, your sales compensation program.
For example, consider a company that wins by getting its hardware installed into customers’ facilities, and then earns an ongoing stream of revenue from consumables. The strategy involves getting the capital placed quickly, and then realizing the fruits of that early placement with an ongoing revenue stream. The sales compensation plan should “overweight” getting hardware placed into accounts.
But it may not be that simple. That strategy may focus only on the top-tier accounts initially to maximize the pull-through revenue. Driving hardware placements with limited follow-on revenue could be a critical plan flaw, either because the accounts don’t have significant potential or because no one is “minding the store” when it comes to pull-through. If the plan causes salespeople to focus on maximizing capital placement while ignoring pull-through, the plan has failed while potentially paying salespeople significant incentives.
This specific example conveys the broader point about understanding the strategy thoroughly and what success would look like at the end of the year. It’s important to clearly understand all possible scenarios related to driving the sales strategy so that you can effectively plan for these scenarios in the design of the sales compensation plan.
2. Motivating behavior: Your compensation plan must also drive behavior. Actions and behaviors by salespeople with the incentive plan should be clearly different than what they would be without the plan. Here are the two most important ways to achieve this:
- Keep the plan simple. To motivate behavior, salespeople must understand how they’re paid. According to ZS’s Incentive Practices Research surveys from the last two years, one of the top sales compensation issues is the lack of plan understanding. Your plan should be limited to three metrics and the plan mechanics should be easy to understand. In addition, your plan rollout process should ensure your sales managers and salespeople can recite the plan inside and out.
- Help salespeople maximize their ROI. Salespeople, much like the companies they work for, are thinking about their ROI. How much effort is required to earn money at a particular level across all of the plan components? Establishing metric weights and payout curves that clearly reflect the effort required for each component will help salespeople improve their ROI. Do you want your salespeople to push well beyond their quotas? Design a payout curve that helps them decide to do so.
While you should strive to follow all of the guiding principles in your sales compensation plan, focusing on supporting your strategy and motivating behavior will be the most impactful. Ensuring that your plan metrics and mechanics are aligned with strategy and easy to understand—and make your salesperson’s effort worthwhile—will go a long way to ensuring a successful 2018.
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