Most sales organisations possess a sales compensation plan with the intention that it positively influences the delivery of sales revenue results for the company.
Many sales plans exist intending to increase sales revenue results with limited conditions beyond top-line revenue and margin attainment and exceeding a minimum sales quota. Depending on your sales strategy, the sales compensation plan may require more complexity and conditions to ensure your present strategy efficiently attains the intended outcomes.
Many sales leaders and their sales operations team members may be contemplating the steps they can take to develop a sales compensation plan that drives sales revenue results but with the right mix of customers and business segments.
Before modifying your current strategy, allocate some time to contemplate the outcomes you require from the sales team.
What purpose does a sales compensation plan serve?
When designing a sales compensation scheme, you are working to motivate desired behaviours to attain particular outcomes. It communicates to the sales team your expectations and the results for which you are willing to offer compensation.
Before you begin developing a compensation strategy, you must consider the specific outcomes you wish to attain.
Is the goal increased revenue? Enhanced gross profitability? More new customers? An increase in customer retention? Are new markets opening? Is there a mix of products and services you wish to achieve?
By developing a strategy that corresponds with the overarching goals and objectives of the company, the sales team can align their behaviour to achieve the intended results. They understand how and when they will be rewarded and prioritise their activities accordingly.
For instance, when your company’s objective is to drive sales revenue results through acquiring new customers, what measures are you implementing to ensure adequate attention is directed towards accomplishing this goal?
If your compensation structure is predicated on overall revenue generation, what guarantees will this generate new customer revenue? What guarantees that salespeople will not lose focus on existing customers while pursuing new customer revenue?
Does the sales compensation plan incorporate specific incentives to achieve the desired outcomes?
Depending on your organisational structure, your sales operations or management team must invest effort in establishing precise goals and quantifiable indicators to assess performance and track results. For instance, managing sales revenue results and the sales quota, it may be advantageous to specify the proportion of revenue attributed to new customers and the retention level required for the salespeople to be eligible for commission.
What matters is how you pay, not what you say.
It is of the utmost importance to communicate your company’s goals and objectives transparently so that the sales team, as well as the company as a whole, are completely familiar with their responsibilities in attaining the intended outcomes.
Your highest-performing sales representatives are exceptionally adept at analysing their compensation plans to maximise their personal earnings. Your measurement methodology must be consistent and withstand the scrutiny of the sales team and your sales operations personnel. Unclear plan details and changing rules contradict delivering sales revenue results. The most important factor is how you pay, not what you say.
Components Of An Efficient Sales Compensation Plan
Many companies look for pre-written templates to use as a baseplate for their sales compensation plan. Each company is different and requires subtle variations and conditions according to its industry and market. A standardised plan does not exist that can adequately cater to the specific requirements of all companies. However, common components of successful plans are undeniable.
The objective is to integrate certain conditions and rules that will advance your company’s goals. Ensure that you have a robust understanding of what you wish to achieve. Conduct a what-if exercise to test the boundaries and find potential loopholes where sales can deliver results but at an unplanned cost to the company.
You ultimately compensate for outcomes, not exertion, but you don’t want to give money away through a flawed plan. Both sales and the company must win in the plan objectives and payouts.
What is the function of a compensation plan?
Although a diligently planned and implemented compensation plan can support and motivate salespeople and guide their conduct, it cannot replace management’s active involvement and commitment.
A sales plan requires management engagement. Regular one-on-one coaching sessions with salespeople are an obligation that the sales management should conduct. They would review activity levels and focus, sales techniques, and progress towards the achievement of key objectives during these meetings.
These coaching sessions are the most effective way to guarantee that every salesperson is adequately focused and efficiently employing the available resources to produce high-quality outcomes consistently. Outstanding performance demands exceptional leadership.
Where To Commence
Starting with your stated objectives and comparing your current compensation plans to them is a smart place to begin. Is there alignment between the plan and the objectives? Do they generate the intended outcome of increased sales revenue results with all other prerequisites of customer mix and other conditions being met?
If not, then identify the points of failure. To what extent do your outcomes deviate from your objectives?
This fundamental methodology will demonstrate the areas of emphasis for your sales team with the compensation information you provided. Keep in mind that your salespeople rely heavily on their compensation plans when determining where to invest their time, which opportunities to pursue, and which deals are profitable.
Ensure your compensation plan effectively aligns with their goals to attain the desired outcomes.
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