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Making an Impact With Sales Compensation

Sales Compensation is a misunderstood, yet ALWAYS scrutinized facet of sales. Every sales organization has a “commission plan” but is it truly designed to make an impact with both the company and the sales representative? Will it motivate sales success day-to-day, month-to-month, quarter-to-quarter and year-to-year?

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Making an Impact With Sales Compensation

  1. 1. Making an Impact With SalesCompensation Prepared by John C. Kolencik Copyright 2012© by Matrix Impact
  2. 2. Sales Compensation is a misunderstood, yet ALWAYS scrutinized facet ofsales. Every sales organization has a “commission plan” but is it trulydesigned to make an impact with both the company and the salesrepresentative? Will it motivate sales success day-to-day, month-to-month,quarter-to-quarter and year-to-year?The days of "go out and sell a lot" are done and gone. Yet most salescompensation programs are STILL counterintuitive. They encourage salespeople into 3 of the worst possible activities: Sell easy (sell the easiest item to sell, to the people most likely to buy) rather than what’s in the best interests of both customer and employer. Close business at the expense of relationship building. Sacrifice ongoing activity that will lead to an exponential amount of business at the expense of an individual sale or one successful sales month.It’s common sense that salespeople will do what the compensationprogram rewards (easiest sales) and not what is in the strategic plan. Salescompensation encourages and discourages behaviors and not alwayscorrectly.If you want to accomplish company strategy, ask yourself if yourcompensation program directly supports your corporate strategy byencouraging the right kind of behavior.What Should a Sales Compensation Plan Accomplish?The 3 goals of an effective sales compensation: Effectively guide and motivate the sales representative to achieve the highest possible sales revenue while shining a light on how to use their time most effectively. Motivate sales to perform the activities that will lead to success in sales. A revenue-activity linked strategy will help generate the correct activity levels while reinforcing production. Achieve daily execution and practice of core company philosophy, strategy and tactics.
  3. 3. 68% of employed sales people surveyed said a compensation program that rewarded for both activity and production would cause them to set, and then work toward, job-related goals. Source: American Express Incentive Services Successful salespeople want to make money, DUH. What they want almost as much is a simple commission program allowing them to earn as much money as they can, based on the successful work they put into the endeavor. Matrix Impact’s 11 Rules for Making an Impact With Sales CompensationRule Number 1: Compensation = BehaviorCompensation programs must mirror your company philosophy. Salesreps will behave/perform in relation to their compensation plan. Use anyexample you want here - high/low performing, sand bagging or bringing inbusiness early, price gouging or price slashing you name it and they will doit based on how they get paid.
  4. 4. 2) Best Practices Lead To Best IncomesThe salespeople who are the most skilled, hardest working, best preparedand most organized will make the most money. This is why it is CRITICALthat all reps are taught and drilled on best practices monthly. Guaranteeeverybody an equal chance to succeed. This also corresponds to activity;we’ll get to that later in this discussion.3) Sales Manager MustsThe Best Comp Plan Will Be Laid Waste by Sales Managers That Don’t: Train and Coach Their Reps Ride with Their Reps Track Activity, Track Sales Volume and Profitability4) Macro Components that MUST Be PresentReward – Challenge - PunishmentThese 3 basic components of motivation act as a balance for each other.Without equal measure of all 3 components your program will fail.5) Volume and ProfitabilityCommission should be based on and balanced by volume and profitabilityin equal measure. If not you will either get bloated numbers that will loseyou money and eventually close your doors or too few deals at greatmargins that will eventually close your doors.6) NEVER CAP YOUR SALES REPS EARNING POTENTIAL. LET MEWRITE THAT AGAIN; NEVER CAP YOUR SALES REPS EARNINGPOTENTIALIf the company CAPS the compensation plan on some arbitrary number,prepare for people to take the year off once they hit that number. Their nextmove is to quit and find a company that won’t cap their earnings.The only things that should ever C.A.P. sales’ ability to earn is: Competency: How proficient are they in the practice of sales? Activity: What level of activity do they perform at consistently? Production: What level of production do they perform at consistently?
  5. 5. It is management’s job to give sales all the training and support they needand then sales provides the rest. After that it is law of the jungle time.7) Revenue NeutralDon’t lose money at the expense of keeping salespeople happy. Whendesigned correctly you can make this program revenue neutral.8) Simple CalculationCommission should be EASY to calculate. Reps should be able to figureout commission with basic math so fast that if they only had 10 minutesBEFORE a closing meeting to do it, they would know how much they willmake on a deal. Call it motivation…..9) Activity as AcceleratorThe best programs reward activity by using it as a commission accelerator.Set challenging smart activity goals, reward hitting activity with % bump,measure, monitor and watch sales volume totals go through the roof.10) You Must Have a Bowl HelmetMost College football teams will change their helmet when they make it to abowl game. The BEST teams use it as a showcase. They put it out to theplayers as a GOAL to achieve. The head coach at my alma mater Kent State put this helmet on display where all the players could see it. He promised that if they went to a bowl game they ALL would wear it. This year they made it to the 1st bowl game appearance in 40 years. A manager needs to KNOW how much money your sales reps want to make. Then show them in terms of achieving their goal as well as how much they could potentially hit as well. Remember the old axiom “seeing is believing.”
  6. 6. 11) Guidelines Regarding Commission Splits Either stay in contact with your customer base or cede your right to them. No contact for 6 months and an account is a jump ball. Contact is defined as evidential (think CRM tracking reports) person to person discussions that can include phone conversations at minimum up to in-person meetings. Some examples are business status calls, appointment scheduling calls, discoveries, presentations, lunch etc. Touches like letters or email blasts do not count. If there is overlap and both reps have been in contact (evidential proof) and both are permitted by the company to sell across lines and both want to work the account then split the commission, think 50/50. Overlap is defined as when 2 sales reps share a geographic, market or customer specific territory, but may sell different lines of products. Companies SHOULD NOT have overlapping where salespeople can sell across product, territory, market or customer lines, that is of course unless you want ongoing civil war. I acknowledge it does happen thus have created a rule set. If there is overlap and both reps have been in contact (evidential proof), the rep that uncovered and is working the lead should receive the majority of the commission, think 75/25 to the rep working the lead If there is overlap and a rep is called in because of a product specialty, major accounts etc. then split commission think 75/25 to the rep who discovered the lead/whose territory it is in. If there is a discrepancy it is a situation by situation review. Manager makes decision based on evidential proof of contact, discovery of opportunity and ability/willingness to work the leadThere are some variables that could occur, exact percentages for instance.The one thing that should never change regardless of industry, product orsituation is regarding contact. If a rep doesn’t stay in monthly contact withtheir customer base they cede any claim to them as customer base(potential or otherwise).
  7. 7. That’s it folks, all 11 in a nutshell. I willingly concede thereis more to a compensation plan including benefits, daysoff, title etc. But really when it comes right down to it these11 rules are the HEART of the matter.Being logical, defensible, fair and most of all, in alignmentwith what sales people look for from a company. They arewhat’s really important in a effective compensation plan.If you take the time and apply these rules the next timeyou design/revisit compensation, I promise you will have amotivated sales team that trusts its employer.You will have designed a Sales Compensation Plan ThatMakes an Impact!