Of all questions, this is the one that remains on the minds of sales leaders and executive teams. It is often the cause of more debate and angst than any other question in a business.
People search for the golden answer, however their quest will not deliver a definitive one because it all depends on what you want to achieve.
The current wisdom is that while there are ‘best practice’ frameworks for creating the ideal sales compensation or incentive scheme, it is not a ‘one size fits all’ approach.
While Remuneration Surveys can provide some pointers, they are not a reliable or accurate predictor of what you should be paying.
According to Solterbeck, specialists in sales incentive programs, most companies fall down when it comes to designing, executing or building solid foundations for their sales incentive plans.
Design
Designing sales incentive plans receives the most attention by sales mangers, HR and executives; however some of the common pitfalls in design include selecting measures that cannot be supported by existing systems, designing overly complicated schemes, a lack of clarity in plan documentation, and poor target setting.
Execution
Even when design is first class, plan execution is usually under resourced and not properly managed or administered, resulting in plans being either too costly to administer or too complicated to work. Plans are often poorly communicated and are not supported by systems which make modifications and reporting difficult and create confusion within the sales team.
Foundations
Before you begin to design and execute the plan, you need to build on solid foundations. What is the purpose and principles that underpin the compensation strategy? Most companies fail to answer this question because there was not a consistent, robust, and documented agreement across the business as to what the foundations are.
Recently, I wrote on ‘Measuring and managing the right things in sales’ and ‘Creating effective performance management systems’ which are critical to this topic and help form the foundations you need to support any well defined sales incentive plan.
If you are experiencing the following problems with your sales incentive plan:
- too hard or too complicated to understand (it should be able to be explained on one page and easily understood by all involved, including non sales people)
- too costly to administer
- no emphasis on profit margins (i.e. no consequences for unnecessary discounting and sales based only on volume not margin)
- too ambiguous (not enough emphasis placed on clear and accountable performance criteria that support company goals)
- sales people do not know where they stand and cannot work towards or predict their incentive outcomes based on their actual performance
Then you may want to consider the following questions:
- Why do you need or want a sales incentive plan?
- What do you want your sales incentive plan to achieve?
- How does your sales incentive plan drive superior, sustainable sales results?
- How does your sales incentive plan support or detract from current company goals?
- Can you easily measure and manage sales performance?
- Can the sales incentive plan be easily explained, understood, and implanted?
- Can you define the goals for your company and then determine how the sales force will support you in achieving these goals?
- How do you intend to grow your business via your existing customers and new customer acquisition?
- What type of mix of sales and support roles do you need in your sales team and who is doing what (account management, new business development, the up-selling and cross-selling, etc) to retain and generate more sales?
- Who, and for what, should get rewarded?
- Do you want to reward team or individual performance? Or both?
- What does it cost your business to make, grow, and retain sales?
These are some questions, among others, that you may want to ask at all levels in your business.
Each business varies in their strategies, goals, and objectives because each business is likely to have a different business model or be at a different point of maturity. If you choose to have a sales incentive plan, make sure it is linked to your current strategy and drives the right performance for where your business is currently at and where you want to take it.
It takes thoughtful effort to build the sales incentive plan that is right for your business. Keep it simple and make sure you review the effectiveness on an ongoing basis because if you change your business and go-to-market sales strategy then chances are your sales incentive plan will need to change too.
Remember everybody lives by selling something.
Sue Barrett is Managing Director of BARRETT.
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