Sales Incentives plans or schemes can have the opposite effect to what you originally planned.
Compensating salespeople can be one of the most significant challenges sales managers face when determining an effective selling strategy. It can determine sales rep’s responses to selling products and which customers and products they will focus their efforts on. When you are working with people’s sales compensation it is a subject that can be tedious and you need to step carefully and be sure you have the plan right.
From experience, you know an effective well-designed sales incentive scheme can motivate team members and win new business whilst protecting and nurturing existing customers. But the reality for many companies is most of the sales team do not reach performance levels that ignite sales incentives. The incentives end up being won by top performers creating a gap in performance across the entire sales team.
What incentives are not
Sales incentive programs need to resolve both short term and long term goals of the business. Simply offering cash rewards to sales staff for quick results of closed deals is not good for business. Companies revert to those tactics with sales results are slipping in the belief that salespeople will jump at the chance of collecting extra funds.
Is your industry suitable for sales incentives?
Incentives programmes can be difficult for many companies to write, and in some industries, they are not a regular practice. Some companies opt for a bonus scheme at the end of the year although its effectiveness is often muted as it is shared with others outside of sales or it is seen as a gift depending on management’s mood and profitability at the end of the year.
The sales process used in your company and its requirements for new business vs. existing business play a major role in how relevant sales incentives will be in your situation.
This simple table provides insight into the behaviours associated with compensation plans from a percentage basis of the overall compensation package. The salary component is the base salary offered for the role. It sets out the behavioural response you can expect from salespeople, depending on the balance of base salary to commission.
The more new business is required in a company for driving growth, the more relevant sales compensation plans become to drive the right sales behaviours.
|
Salary Component |
Commission Component |
The focus from Sales Person |
|
100% |
0% |
Maintenance of customer and operative within your guidelines to retain employment. A customer service approach rather than a sales approach |
|
90% |
10% |
Maintenance of customers with some incentive for customer protection and growing their account |
|
80% |
20% |
Maintenance with increased customer retention and some new business from company-generated leads |
|
70% |
30% |
Maintenance with increased customer retention and a focus on new business |
|
60% |
40% |
Lower level maintenance of existing accounts with new business focus |
|
50% |
50% |
New Business and slower protection of existing accounts. Focus on the new opportunities more than account management |
|
0% |
100% |
New business acquisition focus |
Good reward programs can define the performance of the team and contribute to the success of your strategy implementation. For them to exist, you require the sales organization to have clear sales targets that remain the same for the entire year. You need effective sales processes that are proven to work, allowing sales performance to scale without barriers.
They need to be written in such a way that they protect the company from the loopholes that salespeople are quick to find but do not put in unnecessary barriers to success. There also needs to be a consideration of the pay scales as incentive plans have an impact on how salespeople operate within their role, and their effect can offset or enhance the profile of the person you hire.
Considerations when developing a sales incentive plan
As observed in the table above, reward plans can have an impact on the resulting behaviour of salespeople affecting the bottom line and future growth of the company.
Throwing money at salespeople does not mean the person will excel at sales if the environment and tools to be successful aren’t within the company
The company will need to have in place the right structures, processes and methodologies, marketing and other tools to provide the environment of success.
Your go-to-market strategy is an essential part when planning and the sales incentive plan is the core of how you operationalise the sales force, align them with the company goals, and motivate and drive results. Once you establish the sales incentive plan, it must become a regular part of the sales conversation. Further, the reporting must be accurate and above all, you must adhere to the scheme.
Conducting What-If Analysis
The most common error we see in plans is when insufficient ‘what-if’ analysis is applied. Companies often over-emphasise the value of percentage against revenue, which optimally should focus on gross margin. These figures can look quite innocent on paper until you start doing the what-if analysis. What will it look like for each salesperson based on past performance? What will it look like if they focus on more new business? What if they increased their performance by 20% or 30%? Well-thought-out plans can achieve these gains if developed and implemented correctly.
The questions to consider when developing a sales incentive plan.
- How much potentially can the person earn?
- Is the company able to accurately measure those revenue figures?
- Have you made the plan overly complex and potentially hard to manage?
- Can you report weekly on the results through your current operating systems?
- Is the plan aligned with your sales cycle?
- Do the rules and regulations of the plan serve the company?
- Moreover, importantly, is the company able to cope with a salesperson earning that level of commission?
The last question may seem mute, but we have seen more reward schemes fail due to this point more than any other, particularly where companies are not acquainted with the payment of incentives and find it unusual in relation to all other employees in the company.
The Biggest ‘No-No’ in Sales Incentive Management
Many times we have observed this occur in companies, and it is a great lesson in being committed as a company to rewarding sales representatives.
The sales team were previously offered rewards but were not receiving funds, and there was a background to non-payment. The culture of the business was negative to plans, and little engagement in conversations about plans occurred in the business. Sales Focus Advisory implemented a new plan, and importantly with the measurement system and training for salespeople on how to win under the plan. The plan was a win-win for the company and participants. As a result of the new sales incentive plan, sales escalated to all-time highs and the expected rewards to the salespeople were outstanding. The company and the individuals were all winning.
This success brought to light that the company was now required to pay more than expected commissions, and others, including the CFOs, started to reject the payments and find reasons not to pay the participants. As soon as possible, they decided to modify the structure and rules of the plan, with changes to the payout criteria and percentages. Furthermore, the changes were difficult to track and report on, and they did not conduct a thorough ‘what-if’ analysis.
The companies experience a nearly 100% churn of staff within the coming 12 months.
The result of the changes provides an explicit example of “Is the company able to cope with a salesperson earning that level of commission?”
Attracting Top Talent with Proven Rewards in Your Reward and Recognition Plans
Executing well-designed plans can assist companies in creating a culture of high performance where individual goals are aligned with your strategy. When a company becomes known for rewarding high performance, this has a positive impact on attracting and retaining top sales talent, becoming a fundamental key to success.
Sales incentive programmes require careful consideration, including the use of a what-if analysis and ongoing management. Importantly the company must be able to live with the results. When managed effectively, they become a valuable tool for growth.
If you are looking to create or align your sales incentive plan to your sales strategy, please reach out and contact our office.
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