Sales Compensation Plan Considerations for 2018
Owners & Sales Managers: When was the last time you looked at and did an analysis of your sales compensation plan? Is it working or are you acting like an ATM machine for mediocre sales results?
Heading in to the new year, it is critical to review your sales compensation plan. What do you want your plan to do? Does it reward good performance; what about excellent performance?
A word of caution: forget “industry norms.” Otherwise you’ll be stuck never hiring or motivating someone much better than the “industry norm.”
First, Ask yourself:
- Has it been three years or more since any significant changes have been made to your compensation plan?
- Does your sales force cost more than 25% gross profit?
- If less, are you growing at a rate you are satisfied with?
- Does your compensation plan emphasize corporate initiatives?
- Do your sales people consistently uphold margins?
- Are at least 80% of your sales people exceeding their annual sales goals?
- Is your comp plan getting the activity & results you need?
- Does it take too long for a salesperson to become profitable?
- Are you using accelerators in your compensation plans?
A few Sales Compensation plan considerations:
- What gets rewarded gets done—what are you paying for?
- Tie base or draw to sales activity and service calls
- Sales people are paid in direct proportion to how they manage time and accounts
- Straight commission and Straight salary are obsolete plans
- Make Base lines and Brass rings realistic and challenging
- Base ALL Incentives on Measurable Results
- Track and Measure performance consistently
- Manage activity, pay for performance
- Compensation plan should help attract the right kind of sales person
A few trends we’re seeing this year:
- 0% unemployment for good sales people in this market
- Compensation packages are dramatically on the rise for top sales people-the top 15-20% (supply & demand)
- Research shows that most top sales candidates (top 15-20%) are looking for a 15-20% pay increase to change companies, and employers are anteing up.
- Matching Comp Plan to Sales Success Profile of “top performers”
- Successful comp plans focus on: Longer term Retention of sales people
- Team selling is being recognized more frequently & rewarded
- Little incentives, yield little results
- “One Size” doesn’t fit all! Experienced, extrinsically motivated sales people will thrive in a more rewarding, robust, performance based comp plan. Plans should fit about 70-80% of people, with 20-30% with tailored plans.
ROI on Sales Compensation: Questions to Consider
- What is the value of each sales dollar produced? Is the value different if a sales dollar is produced by an existing account versus a new account? Or, is a dollar a dollar, no matter how it is produced?
- How does the time and effort required to maintain (and grow) existing customers compare to the time and effort required to bring on new accounts?
- Do accounts operate pretty much on “autopilot” once they have been brought on board?
- Once an account has been brought on board, can ANY salesperson manage the relationship? Or, is there something special about the relationship that exists between the current salesperson and the account
Careful Considerations moving forward:
- Pay Mix. How much of the salesperson’s target income is salary and how much is variable pay?
- Quotas. These should not be set AT company goal, as only 70% (at best) of the sales team will meet “quota.”
- Include both an upside for big payout if target is grossly exceeded and a downside if a minimum threshold is not met.
Benefits to a Solid Plan
- Fits your budget-solid ROI on sales costs
- Motivates desired behaviors & activities
- Easy to understand & administer
- Lower turnover (turnover=hidden cost of sales)
- The “right” plan will keep the people you want…longer
- Motivation to sell…extra effort
- Helps identify & weed out “under-performers
Need help creating a motivating compensation plan for 2018 that will attract and retain top end talent?
Just call us at 630-560-3614 or complete a contact form.
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