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Sales Compensation: How to Design the Right Plan

Rejection. Even the bravest of us fear it. The same people who climb the steepest mountains and vault off cliffs into the clear blue sea, who pet tigers and smile at the lion sitting 5 yards of them while on safari. But when faced with the possibility of rejection, their stomachs churn, palms sweat and legs turn to rubber. Now, imagine if, during your typical workweek, you had to deal with rejection throughout the day. Imagine hearing dozens of “noes” and yet picking yourself up every time with a big smile on your face and a new dose of enthusiasm. That’s tough. And yet, thousands of salespeople do this every day. Each year, on average, sales reps experience 8 to 10 more rejections than acceptances from their prospective customers.* You may wonder what keeps them going forward. How do they maintain their energy and optimism? The answer is motivation.  

More than anyone else, your salespeople influence how the marketplace perceives your firm and values its products. Great salespeople drive revenue for the company, bring in new clients, retain existing ones, and build brand trust. Keeping them motivated and invested in achieving sales goals is essential to company growth.

But for most companies, designing a sales compensation plan that motivates the sales force and spurs specific behaviors is a major concern. As it should be: nothing matches the power with which sale comp inspires sales performance. Peak Sales Recruiting’s 2017 Sales Compensation Study found that only 30% of respondents were satisfied with their compensation plans, while 44% were neutral and 26% dissatisfied. Basically, this translates to 70% of sales reps being unhappy with how, or what, they’re paid. It’s not far-fetched to imagine that these 70% would be willing to leave their company for another job.

So, how can you design sure-fire sales compensation plans that will continually push your sales force to reach new heights, even in the face of change?

1. Connect sales reps’ targets to larger company goals

Aligning your goals for the sales team with company objectives is paramount when building a plan that works for everyone. What is the organization’s most pressing current need? Acquiring new customers? Customer retention? Profitability? New product distribution?

If acquiring new customers tops your company’s agenda, design a plan that rewards signing new clients. Similarly, if all eyes are on launching a new product, consider introducing a commission or bonus opportunity to reward sales reps specifically for their contribution to a successful launch.

But no matter what your organization’s immediate focus, ensure your sales comp plan is easily adaptable. In order to stay relevant and keep your business growing, changes to the plan, whether strategic or structural, must be easy to implement. When corporate or market changes hit, or a merger or acquisition requires unexpected adjustments on everyone’s part, you’re going to need that built-in flexibility. If sales leaders are able to make quick modifications to the plan and by extension drive specific selling behaviors towards achieving new goals, the entire organization gains agility and flexibility.

2. Find the optimal pay mix

There’s no question that money is the most powerful motivator for reps. Whether you want to entice successful salespeople to join your company or ensure that your top sellers don’t leave, you need a compensation plan that is at or above market.

Once you decide how much each rep will be paid in total, you need to determine the right mix of base salary and commission. According to Peak Recruiting’s study, guaranteed compensation is more important than high compensation. The split that brings the most satisfaction is 60% base/40% commission. That with the lowest satisfaction is 0% base/100% commission.

In your plan, the ratio between base pay and commission may differ from rep to rep: an experienced salesperson, for instance, might demand a higher percentage in base salary, while a rep who’s just starting his career may be willing to work almost exclusively on commission.

3. Set fair and achievable goals

When sales compensation plans base rewards on sales goals that are almost impossible to achieve, reps get frustrated and lose motivation. The best sales compensation plans challenge salespeople while at the same time rewarding them for meeting reasonable target levels.

4. Keep the plan simple and easy to understand

Plans that are written in legalese or weave in an abundance of unnecessary components may well backfire. This is due to the simple fact that they may not be understood, and therefore result in reps reverting to methods that may have worked just as planned to achieve previous goals, but bear little relation to current company objectives. Say, for instance, that your company has recently launched a new product. The compensation plan has been redesigned to incentivize reps to sell it, but most of your salespeople have such a hard time deciphering the message, they just continue to focus on selling the old products. The result: everyone loses money, and the launch goes nowhere.

On the contrary, well-written compensation plans clearly indicate the company’s goals, the outcomes that will be rewarded, and the exact amount of money salespeople will receive for meeting targets. Your reps will spend less time worrying, and more time selling.

In addition to facilitating communication that’s direct and accessible, a sales performance management solution can make life easier for both leaders and the sales force. A solid SPM solution will not only provide reps with the opportunity to ask questions, but will also, when necessary, allow them to quickly convey compensation issues to administrators. Equally important, access to commission registers and reports will enable them to answer their own questions by viewing and drilling down into results. When implemented correctly, an SPM solution improves sales satisfaction and serves to motivate your team.

5. Make timely payments

If you want your plan to induce specific desired behaviors, you need to make it effective as soon as you know the objectives your company is striving to meet. When your salespeople achieve their target, they should be rewarded immediately, and when they fail to meet their goals, the loss should be reflected in their paycheck.

According to the Peak Sales Recruiting study, most salespeople value being paid on time. They also prefer commission payouts when the deal is signed (as opposed to when the deal goes live), and to be paid on a monthly instead of quarterly basis.

For a sales rep, every workday has its difficulties, and rejection is just one of them. But knowing the challenges salespeople experience, and the incentives that drive their best performance, will help you build a strategy that infuses your team with the confidence and motivation it needs in order achieve sales success. Spending time, energy and effort to deepen your salespeople’s commitment to their role is always advantageous. When you incorporate behaviors into your compensation model, your reps will perform better and feel more satisfied, ultimately sparking increases in revenue and leading the company to achieve its goals.

* Mark Donnolo, “What Your CEO Needs to Know About Sales Compensation: Connecting the Corner Office to the Front Line” (AMACOM, January 2013).

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