Your sales compensation plan needs to motivate your sales representatives to accomplish three goals:
In addition, the sales compensation plan should enable you to attract new sales reps as your organization grows.
How do you design a plan to accomplish these goals? Let’s take a look at them individually.
The primary purpose of your sales organization is to sell products and services, driving revenue. There are many steps involved with selling from identifying opportunities and prospects to qualification, presentation, closing, service and collection of receivables. Comprehensive sales plans may place emphasis on these steps of the sales cycle by setting quotas in each of these areas. Or, they may pay a commission at each step with varying payouts based on how important each step is within the overall sales cycle.
In addition, you likely have specific goals for your range of products, customers, markets or geographies. Newly introduced products may require more attention than established products. One company may be focused on customer retention while another wants to expand its customer base. Other companies may be looking to establish a toehold in a promising, new market. Finally, another may be interested in expanding into a different geographic region. Each of these goals should be accounted for in the commission plan. As with the sales cycle steps, you can use quota and commission rates to drive sales behavior and promote achievement of important goals.
Personal and Professional Goals
Most sales representatives are motivated by money and flexibility. Sure, they are also driven by professional pride, a desire to serve their customers and other personal goals. But, for the most part, sales reps measure their success by the money they make and having flexibility in their schedules so they can enjoy their earnings.
A well designed commission plan must offer realistic earnings expectations for your sales reps. You want your sales reps to interpret the plan as enabling them to achieve their money goals. This will keep them happy and motivated to work hard to sell what the company wants to sell. However, if your sales rep becomes disillusioned and does not see that his commission plan as providing a path to achieve his or her goals, then the rep will stop trying. The commission plan will become a de-motivator. In the end, your company will lose that sales rep, and most likely other good sales reps on your team.
Sales Team Retention and Attraction
Your company has made a considerable investment in its sales team. At the very least, the company has spent a lot of time and resources recruiting qualified, strong sales representatives. Once hired, the company spends even more time and capital training its sales representatives. You train new recruits on the company, its culture, processes and systems. You train them on the product line, services, markets, customers and competition. Top-notch sales organizations train their sales representatives on the latest sales techniques, solution selling, relationship selling and tools. Most importantly, established sales representatives have an investment in their customers. They have built key relationships, developed institutional knowledge and honed a market awareness that can take months and years to replicate.
An effective sales compensation plan is designed to keep your experienced and trained sales professionals. It rewards them well for excellence. It bolsters their self esteem. It provides them with a pathway to attain their personal and professional goals. Additionally, an effective sales compensation plan facilitates attracting new sales representatives. Having a pipeline of new reps makes it easier and more efficient to expand into new territories, open new markets and back fill sales representatives who leave due to promotion, transfer, retirement or other reasons.
Stay tuned for my discussion of these specific components of sales compensation plans – base salary, benefits, variable compensation and draws.
For more information, contact Wallace Management Group at (203) 834-0143 or email David Wallace.
© 2009, David P. Wallace