7 steps can help improve sales compensation plan

Denver-Based Sales Leadership Development Available Nationwide

Posted: August 17, 2007

Colleen Stanley

"How and what should I pay my salesperson?" 

Business owners and sales managers often struggle to find the perfect compensation plan that balances motivation, profitability and retention of top talent. 

"There are a lot of challenges with the new economy," says Bill Heck, a partner with Denver's Harlon Group, a performance and compensation management firm. He specializes in sales compensation. "Business environments are changing. The Internet is creating the threat of commoditization, industry consolidations are occurring and suppliers are seeking alternate channels. 

"To meet these challenges, companies need to re-evaluate every aspect of their sales environment, not just the compensation plan." 

Here are seven steps to evaluate to make sure your compensation plan is all-encompassing, and motivating the right behaviors and sales results on your sales team. 

KISS. Yes, you've heard the acronym before: Keep it Simple, Stupid. 

Sales organizations have good intentions when designing compensation plans. However, they often install a plan that requires a degree in statistics to understand. If your sales team members can't figure out how they're getting paid, they'll go someplace where they can. 

A simple way to test the complexity of your plan is to ask each salesperson on your team to explain to you how they get paid, and how they can make more or less money. The answer will tell you whether you've designed a KISS plan or a KMM (Killed My Motivation) plan. 

Get clear on your most profitable customer, and pay sales reps for selling and paying attention to that customer. 
Understand your market and customers. Small customers often spend fewer dollars with your company and cost more to service. Major accounts spend more, but there's often intense price pressure and less loyalty. 

The sweet spot are the middle accounts, which still value relationships and expertise. These companies are in growth mode and feel good about paying for shortcuts you can provide. 

Link accountability for the sales force to business objectives as influenced by your company/industry life cycle. 

If you're a new, emerging company, it makes sense to structure the plan with an emphasis on growth and volume. This changes as your company grows. When your company and/or industry becomes more mature, compensation will focus on market dominance and achieving specific product or service goals. 

Ask tough questions about your sales-planning process. 
How accurate are your sales forecasts? Are sales territories balanced in terms of market potential, customer needs, sales force skills and workload? Are you generating enough leads and tracking the status of all leads in the pipeline? 
It's important to outline your sales process and determine its most important components as they relate to sales success. And don't just pay on results. Pay on the activities you know lead to results. 

Make sure the sales team has the ability to hit new targets and track progress. 

Companies decide they need different results, but don't give the sales team training to achieve those results. For example, a sales force that's been doing account management now is being measured on new business development. 

The sales team is eager to take on the new responsibility and earn additional dollars, but doesn't have a clue on how to prospect, network, build referral partners or close the deal. 

Analyze which compensation plan is going to work best based on the above. 

Plans include commission, bonus, commission plus bonus and contests. The right plan depends on variables. 

Does the salesperson have high or moderate control over the sale? Is the sales cycle short or complex? Is it an individual or team sale? Are you interested in short-term results or long-term focus? What are the cash-flow needs of the salesperson? 

Don't forget the power of recognition. 
Tangible compensation, such as commissions and bonuses, need to be accompanied by intangible compensation, such as club memberships, incentive trips, and peer and company recognition. 

The key to making intangibles powerful is ensuring that everyone in the sales organization understands the qualifications for entry. For example, a sales organization can have one type of award for achieving its 2007 sales goal. 

But it also should have a more prestigious club for achieving sales goals, specific product goals and corporate objectives. This is the group that gets to go away for an all-expenses-paid weekend or incentive trip. 

Take time to think, plan and design an effective sales compensation plan. There's nothing that will demotivate a salesperson more than not understanding their plan or being properly rewarded. 

On the other hand, a well-designed plan will drive company growth in the right direction with the right customers. 

About the Author

Colleen Stanley is founder and president of SalesLeadership Inc., a sales development firm specializing in sales and sales management training. The company provides programs in prospecting, consultative sales training, emotional intelligence training. and leadership training for sales managers. She is the author of Growing Great Sales Teams and Emotional Intelligence For Sales Success. Reach Colleen at 303-708-1128 or visit www.salesleadershipdevelopment.com.

Permission is granted to reprint this article in print or electronically as long as the paragraph above is included and contact information is provided to team@salesleadershipdevelopment.com. Thank you.

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Colleen Stanley is president of SalesLeadership Inc. in Denver. Reach her at cstanley@salesleadershipdevelopment.com or 303-708-1128 .

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