In today’s competitive sales environment it is not sufficient to set a financial sales target and trust the salesperson to figure out how they are going to deliver it. Further, when this method is utilized across the sales force and all salespeople are left to deduce how to achieve their sales targets, they all interpret differently how to execute against the goals (most with honest intentions, but in the end, the organization doesn’t achieve its business goals. The sales compensation plan is a communication tool first and foremost. It should tell salespeople what you value and want to pay them for and where to focus their time and efforts. It should also help salespeople make good choices about what activities will optimize their sales performance and payout. When the plan dynamics are not tied to execution and the program isn’t well communicated with behaviours and activities not supported through incentives, the following occurs:
- The variance in performance distribution is significant, with some wildly overachieving and many majorly underachieving.
- Salespeople employ significantly more company resources and take longer to close sales than they should require.
- Poorer performing salespeople demonstrate compliance to sales processes to retain their position but accomplish minimal results. They will stick around however when better performers leave because they know they cannot compete in the market.
- Managers rather than make investing in development, coaching and mentoring find ways to be very busy …. But they are not effective. They opt not to make the difficult decisions that will leave open territories and instead are accepting of non-performance.
So what then should sales leaders do to combat these outcomes and achieve commitment to sales performance and execution? There are 5 key initiatives that can identify gaps in the performance of the sales compensation program and support the creation of focused, high performing plans. These are:
- Audit Your Sales Compensation Plans – Assessing current plan designs against business goals and future business requirements is essential. It is the gaps in plan design that lead to poor execution. To be effective, the plan needs to be very specific about what it measures, the process for delivery and clear, well delineated sales outcomes.
- Consider Changing the Plan Performance Model – In start-up or high growth sales markets, where there is unlimited opportunity and ample margins, the “production model” of sales which pays a base salary and a commission for whatever is sold, works well to drive volume. At the same time margin is also secondary to volume. In more mature sales markets, with smaller margins and more competition, the production model is not sustainable. Using a “managed model” that focuses on target achievement and driving profitable sales is a necessity.
- Develop Role Specific Designs – In the past, the same plan was rolled out to all salespeople. The focus was on the products and services offered and it was a matter of finding the customer with a need. Today, the focus is on the customer and their business needs. Different salespeople work with different customers in different ways. A National Account Manager, Channel Sales Manager and Business Development Executive all have a similar objective, to drive incremental sales and customer satisfaction, but they perform very different tasks and behaviors to accomplish it. The sales compensation plan must focus on, initiate and reinforce the desired sales behavior for that specific sales role.
- Improve Communication – Companies spend large budgets to design and develop great sales compensation plans and then disparage them by skimping on the effort to communicate them effectively. Poor communications is the Achilles Heel of most programs. Good communication of plans includes recognition and addressing the different requirements for unique stakeholders in the process (e.g.: executives, managers, employees and administrators). They all have distinctive perspectives and data needs regarding sales compensation.
- Management Accountability and Alignment – Too often, the plans for salespeople pit them in opposition to their managers. This happens when we have plans that are not aligned. Typical management plans focus on achievement of the higher level financial sales targets and margins while the salespeople are focused on delivering their own sales volume. Misalignment of management and sales plans works to the detriment of reinforcing strong management behavior and rewarding sales leaders for the performance and achievement of their salespeople. If they are recruiting for and developing the sales competencies in their people that are required to compete in today’s marketplace, they will outperform the competition.
Other keys to developing world class sales compensation are following solid design principles; assessing and researching current plan performance; securing executive direction to create a “blueprint” going forward; and costing and testing the proposed designs to increase the probability of desired sales outcomes. Companies that utilize excellent sales compensation design process, will perform at higher levels and deliver superior sales results.
First published on LinkedIn
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