The right way to structure a sales commission plan? It’s a question without easier answers. Business leaders have wrestled with the issue for centuries, as is evidenced by this New York Times article from 1914, How Should a Salesman Be Paid?
With Q1 sales behind us, it’s time to evaluate where you are against your annual goals. Is your sales force on target?
Ideally (if you’re on a calendar-year fiscal cycle), you should be tracking at 25 percent of your annual goal right now, or at 100 percent of your year-to-date goal.
Most companies aren’t quite there.
Have you seen the recent infographic from Cirrus Insight on how sales reps spend their time? While it’s scary to think more than one-fourth of the average rep’s day is consumed by email, we believe there’s an even scarier time expenditure missing from this visual…
Time spent calculating commissions.
Imagine, it is the beginning of your new year. Your sales compensation analyst is spending their time translating your new sales commission plans into formulas in their commission worksheets. Hopefully there is nothing lost in the translation as to what was in your head when you designed the sales compensation plans, how you expected them to work and what is being entered into the commission worksheet. Your sales reps will need to be paid their commissions soon and they will let you know if they were underpaid!
We work with many business owners and CEOs on their sales compensation plans, thus we hear a lot of the same stories from them. Here are the top 3 critical mistakes that they are making with their sales compensation plans:
1) Not viewing Sales Compensation as a strategic tool to drive revenue
2) Believing that their Sales Reps think and act like they do
3) Copying and pasting last year’s plan because “it works”
This is a common complaint I hear from CEO’s. At some point during the year they finally realize just how much they are paying their bottom performers and just how little sales these reps are closing. This mismatch in pay for performance is related to two underlying problems in the sales compensation plan structure.
To understand this problem better, first you must define what underperformance means to you. Is it 50% of quota, 60% of quota, 75% of quota.
When someone surprises you with a dozen roses, a night on the town, or a weekend away, you may be pleasantly surprised, maybe even stunned by their action, but not shocked. However, if one day you find yourself skiing really well down the mountain then suddenly are airborne because you failed to see the mogul, now that is a real shock! When it comes to commission plans, revenue surprises and shocks are never a good thing!
It is that time of year for most small to medium sized businesses where you have to determine your company strategy and your matching sales strategy. What we see time and time again working with SMBs is that they overlook a very key part of the strategy. The hole in your strategy is forgetting about the behavioral mechanics behind your sales compensation plan and aligning that with the corporate strategy. It is very often that in a small business the owner’s background is based on whatever