Show me the money! Sales compensation plans that won't fail
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Show me the money! Sales compensation plans that won't fail

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Compensation plans are extremely powerful tools for influencing Sales results...when done right! ...

Compensation plans are extremely powerful tools for influencing Sales results...when done right!

If done incorrectly, they can back-fire, demotivate and even distract to your sales team.

In this webinar, we will address the frequently asked question, "How do I design a compensation package for my sales team?"

Sales strategy consultant Michael Hanna will discuss the 7 critical, but commonly overlooked factors for designing and implementing sales compensation plans to keep your team focused and motivated.

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Show me the money! Sales compensation plans that won't fail Show me the money! Sales compensation plans that won't fail Presentation Transcript

  • Show Me the Money! Sales Compensation Plans that Won’t Fail Michael Hanna Founder, Hanna Strategy Group November 19, 2013 Proprietary and Confidential ©2013 OpenView Investments, LLC. All Rights Reserved
  • Outline •  Introduction •  Base Salary / Variable Split •  Why the Sales Compensation Plan Exists •  7 Commonly Overlooked Factors •  10 Compensation Modeling Elements •  Recap •  Q&A Proprietary and Confidential ©2013 OpenView Investments, LLC. All Rights Reserved
  • Why the Sales Compensation Plan Exists From the Organization’s Perspective: 1.  To provide clarity of focus for each role. 2.  To define success for the sales person’s contribution to the organization’s success. 3.  To motivate behaviour by rewarding for results. From the Sales Person’s Perspective: 1.  To help fund their personal goals. Proprietary and Confidential ©2013 OpenView Investments, LLC. All Rights Reserved
  • Base Salary / Variable Split What Determines Base Salary: •  Level of Difficulty Variable (% of TTCC) ENTERPRISE SALES Large Deals, Complex, Multi-Year Sales Cycles 50% •  Level of Autonomy INSIDE SALES •  Experience Required High Volume, Hunting, STRAT ACCT MGR High Influence, Pro-active Complex, Large Cust’r, Hunt/Farm/Catch What Determines Variable Comp: ACCOUNT MGR Hunt/Farm/Catch, Pro/ O/B LEAD GEN •  Complexity of Sales Cycle High Volume, Short, Simple, Pro-active •  Influence on Buying Decision I/B LEAD GEN •  Inbound vs. Outbound •  “Hunting” vs. “Farming” vs. “Catching” 10% High Volume, Short, Simple, Reactive $25K Proprietary and Confidential ©2013 OpenView Investments, LLC. All Rights Reserved Re-active Annual Base $100K+ Salary (USD)
  • Don’t make these mistakes… 7 COMMONLY OVERLOOKED FACTORS It’s impossible to please them! Proprietary and Confidential ©2013 OpenView Investments, LLC. All Rights Reserved What was I thinking?
  • 1. A simple plan is better than a thorough plan. Commissions If your reps cannot easily calculate their commissions as they make decisions in real-time, then your Comp Plan is not proactively affecting behaviour. It is simply rewarding your reps after the fact. Proprietary and Confidential ©2013 OpenView Investments, LLC. All Rights Reserved
  • 2. Set comp metrics that align with your business model and stage of growth. •  Success for Company A ≠ Success for Company B. •  Service-Based Company => Revenue Recognized or Billable Hours •  Product-Based Company => Bookings •  SaaS-Based Company => Recurring Revenue (monthly or annualized) •  Success in Season A ≠ Success in Season B. •  Start-Up => Cash Flow => Up-Front Payment •  Expansion => Market Share => New Customers Proprietary and Confidential ©2013 OpenView Investments, LLC. All Rights Reserved
  • 2. Set comp metrics that align with your business model and stage of growth. •  rces: u Success for Company A ≠ Success for Company B. Reso aS ry Sa ” ve or ain •  Service-Based Company => Revenue Recognized aintBillable rds E oa ashb hould M “3 D s S pany nView Lab •  Product-Based Company => Bookings Ope Com f o Some ring Explo at Matter •  SaaS-Based Company => Recurring Revenue s th w: Revie Metric ge “Pe r aaS on (monthlyteorSannualized)-Sta nsi he Expa ies” to an Most Comp iew Labs Success in Season A ≠ Success in Season B. penV -- O -- •  •  Start-Up => Cash Flow => Up-Front Payment •  Expansion => Market Share => New Customers Proprietary and Confidential ©2013 OpenView Investments, LLC. All Rights Reserved Hours
  • 3. Design your comp plan document like a marketing asset, not a contract. Sales Compensation Plan Though shalt Though shalt Though shalt Sign here Proprietary and Confidential ©2013 OpenView Investments, LLC. All Rights Reserved Sales Compensation Plan
  • 3. Design your comp plan document like a marketing asset, not a contract. Sales Compensation Plan Though shalt e: ourc his One? Res rd T u Hea nications w Yo Ne HaveThoughommu “ C shalt eak Your Plan or Br n” e Pla ake tiv Can M les Incen p, Sa -s Com ale tter S ork.org Be w Gott, ordat ton nW Clin ted o pos Though shalt Sign here Proprietary and Confidential ©2013 OpenView Investments, LLC. All Rights Reserved Sales Compensation Plan
  • 4. Ensure you can accurately track your quota metrics. Whenever possible, avoid metrics that are: •  Dynamic •  Estimated •  Subjective •  Incomplete Lost credibility kills motivation and creates a lasting distraction! Proprietary and Confidential ©2013 OpenView Investments, LLC. All Rights Reserved
  • 4. Ensure you can accurately track your quota metrics. Whenever possible, avoid metrics that are: •  Dynamic •  Estimated •  Subjective •  Incomplete r f thei o d 5% fixing en ps sp ecking/ s, “Re n ch ment i te time n sta s io miss nagers a e an com d ma e hav e n w a 10%— ales forc s .” uch a f the s m tants o un issue into acco n -rning nsatio tu ompe eC ch, centiv s Resear In Sales Practice ions Inc. Best th Solut Grow Lost credibility kills motivation and creates a lasting distraction! Proprietary and Confidential ©2013 OpenView Investments, LLC. All Rights Reserved
  • 5. Provide real-time visibility. •  Deliver your Compensation Plans with a calculator to run scenarios. •  Provide a live dashboard indicating attainment to quota. Proprietary and Confidential ©2013 OpenView Investments, LLC. All Rights Reserved
  • 6. Anticipate staffing challenges. Total Company Achievement = Head Count •  Quota per Rep •  Turnover Factor from Existing Reps •  Ramp-Up Factor for New Reps •  Delay Factor for Late Hires Proprietary and Confidential ©2013 OpenView Investments, LLC. All Rights Reserved
  • 6. Anticipate staffing challenges. Total Company Achievement = Head Count •  Quota per Rep •  Turnover Factor from Existing Reps •  Ramp-Up Factor for New Reps •  Delay Factor for Late Hires Proprietary and Confidential ©2013 OpenView Investments, LLC. All Rights Reserved : RLAY E H OV l Reps C f W MU ta for Al HO 0% o o 12 Qu Total qual 110 – et e rg ould ny Ta a sh Comp : TATS 9.7% S : Class : 10.1% in ge Best Avera 2.3% try ndus gards: 1 I up Lag n Gro e berde --A 12 in 20 r rnove hts tu 5.5% O Insig 2 --CS
  • 7. Reserve compensation budget for ad-hoc SPIFF’s. •  Helps you avoid changing Compensation Plans mid-year. •  Enables you further incent for dealing with changing conditions. •  Sales contest to beat a disruptive competitor. •  Customer win-back campaign to off-set churn. •  Added incentives to compliment a new product launch •  “Catch-up” contest for underperformance. •  Quarterly / Annual contests for most new logos, largest deal, most creative objection handling, greatest team player, etc. Proprietary and Confidential ©2013 OpenView Investments, LLC. All Rights Reserved
  • 7 Commonly Overlooked Factors 1.  A simple plan is better than a thorough plan. 2.  Set comp metrics that align with your business model and stage of growth. 3.  Design your comp plan document like a marketing asset, not a contract. 4.  Ensure you can accurately track your comp metrics. 5.  Provide real-time visibility. 6.  Anticipate staffing challenges. 7.  Reserve compensation budget for ad-hoc SPIFF’s. Proprietary and Confidential ©2013 OpenView Investments, LLC. All Rights Reserved
  • 10 COMPENSATION MODELING ELEMENTS •  Base Elements •  Limiting Elements •  Over-Performance Elements •  Additional Elements Proprietary and Confidential ©2013 OpenView Investments, LLC. All Rights Reserved
  • Commissions Base Elements is Scale ate g Slidin ppropri a e more h volum ig for h actional trans les sa Sliding Scale Step Function Target earnings Quota Attainment Proprietary and Confidential ©2013 OpenView Investments, LLC. All Rights Reserved MY E: RENC , E PREF tandard Use S ou have a y nless ng reason u li mpel rwise co othe
  • Commissions Limiting Elements Target earnings Quota Attainment Proprietary and Confidential ©2013 OpenView Investments, LLC. All Rights Reserved
  • Commissions Limiting Elements re is mo or Floor riate f op appr volume high ctional a trans les sa Ceiling Target earnings Quota Floor Attainment Proprietary and Confidential ©2013 OpenView Investments, LLC. All Rights Reserved MY : ENCE ER PREF r use a Neve hy cap W iling! ance? ce rm perfo
  • Commissions Over-Performance Elements Target earnings Quota Attainment Proprietary and Confidential ©2013 OpenView Investments, LLC. All Rights Reserved
  • Over-Performance Elements Accelerator Commissions Retroactive Accelerator by alify or Qu ent ainm ute att ib y attr b Target earnings Quota Bonus : ENCE or ER PREF Accelerat MY e gh oactiv erful, thou Retr pow e. ery escrib ne is v od icult t y, combi diff ivel tor. ernat Accelera Alt & onus B Attainment Proprietary and Confidential ©2013 OpenView Investments, LLC. All Rights Reserved
  • Example 1: Qualifying by Attainment vs. by Attribute SaaS Comp Plan: Option 1: •  Primary: Monthly Recurring Revenue (MRR) (Top line) •  Primary: MRR Attainment •  Secondary: Average % Discount (profitability) •  Bonus: Exceeding 100% of MRR Quota Option 2: •  Primary: MRR Attainment •  Bonus: < 10% Average Discount Proprietary and Confidential ©2013 OpenView Investments, LLC. All Rights Reserved
  • Example 2: Qualifying by Attainment vs. by Attribute SaaS Comp Plan: •  Primary: Monthly Recurring Revenue (MRR) (Top line) •  Secondary: Term Length Option 1: •  Primary: MRR Attainment •  Bonus: Exceeding 100% of MRR Quota Option 2: •  Primary: MRR Attainment •  Accelerator: 2 Year Deal => +25% 3 Year Deal => +50% Proprietary and Confidential ©2013 OpenView Investments, LLC. All Rights Reserved
  • 10 Compensation Modeling Elements Base Elements Over-Performance Elements 1.  Standard Commission Rate 6.  Bonus 2.  Sliding Scale 7.  Forward Accelerator 3.  Step Function 8.  Retroactive Accelerator Limits Additional Elements 4.  Floor 9.  SPIFF’s & Contests 5.  Ceiling 10.  Non-Monetary Proprietary and Confidential ©2013 OpenView Investments, LLC. All Rights Reserved
  • 10 Compensation Modeling Elements Base Elements Over-Performance Elements 1.  Standard Commission Rate 6.  Bonus 2.  Sliding Scale 3.  Step Function Limits ts 7.  Forward Accelerator emen el ining nt for b y com an ince B lts 8.  Retroactive Accelerator you c dary resu ing iz n seco depriorit nts t e ithou compon w y Additional Elements rimar p 4.  Floor 9.  SPIFF’s & Contests 5.  Ceiling 10.  Non-Monetary Proprietary and Confidential ©2013 OpenView Investments, LLC. All Rights Reserved
  • Example: Combining Elements BDR Comp Plan: •  Primary: # New Qualified Leads (Quantity) •  Secondary: % of Qualified Leads Accepted (Quality) Option 1: •  # New Qualified Leads: 70% of Target Comp •  % of Qualified Leads Accepted: 30% of Target Comp Option 2: •  # New Qualified Leads: 100% of Target Comp •  % of Qualified Leads Accepted: Accelerator: >= 80% => + 25% Decelerator: < 40% => - 25% Proprietary and Confidential ©2013 OpenView Investments, LLC. All Rights Reserved
  • Recap The design and implementation of your Sales Compensation Plan will only succeed if your sales reps… •  Understand it. •  Buy into it. •  Trust it. Proprietary and Confidential ©2013 OpenView Investments, LLC. All Rights Reserved
  • Questions Proprietary and Confidential ©2013 OpenView Investments, LLC. All Rights Reserved
  • Michael Hanna ca.linkedin.com/in/michaelhanna7/ @michael_hanna www.facebook.com/michael.hanna.988 www.youtube.com/HannaStrategyGroup michael.hanna.3 michael@hannastrategy.com Proprietary and Confidential ©2013 OpenView Investments, LLC. All Rights Reserved