Successful Sales Compensation Planning and Improving Business Performance

Selling is difficult and it’s hard to hire and keep good sales people. This can impact Business Performance, so how do we simplify it?

Get your Sales Team’s sales compensation plan (Comp Plan) right and it will help engage and motivate them and ultimately drive the sales performance your business needs. Therefore, it’s critical that time is taken to develop a comprehensive and well thought out Comp Plan.

So, what does motivate sales people? For most it’s the financial rewards, but for many it’s the thrill or challenge of the chase, the winning and ultimately the accolades that go with being a successful sales person.

Research by Stony Brook University established that success really does breed success. Their researchers found that early success bestowed on individuals produced significant increases in subsequent rates of success. Setting realistic, achievable sales targets can help create a culture of success in sales.

So, what is a sales Comp Plan? In a nutshell, it’s a document which lays out, in plain English, the targets a sales person is expected to achieve and what they will earn when they reach and exceed target. It should identify specifics such as territories the sales person may sell into and products they may sell. Other elements it should have include what qualifies as an acceptable sales order, timings of commission payments and how sales management will settle disputes.

Comp Plans don’t need to be overly complex or sophisticated, sometimes the simpler the structure the more effective they can be in motivating Sales Teams. This is just one aspect to consider, below are some key considerations when preparing an effective Comp Plan:-

  • Alignment
    Understand your company’s business objectives and ensure these are considered when designing the sales Comp Plan.  Is your business focused on landing new customers or growing business within your existing customer base?  If it’s the former, then higher incentives could be attached to new customer wins.  Is your business launching a new product? Then perhaps an added incentive can be paid on sales of the new products.
  • Match
    One size doesn’t fit all, so ensure the Comp Plan is relevant to the Sales Team and/or individual sales person.  Time should be taken to assess your Sales Teams, and understand individual team members’ strengths and weaknesses.Sales people broadly tend to fall into two types and exhibit different learned or innate selling behaviours and skills.  Let’s call the first type “Hunters“.  These individuals are ideally suited to seeking out potential customers and new business. The second type are “Farmers”; these individuals are better at developing relationships and selling into the existing customer base.  Consideration should be given when allocating territories and setting targets to ensure the best fit.
  • Clarity & Simplicity
    Ensure that the structure and rules of sales engagement are clearly communicated to your Sales Team. It’s often useful to prepare different scenario examples to illustrate what the sales person will earn at different levels of performance.  For example, scenarios showing sales target achievement of say 50%, 75%, 100% and 125%.  These can serve two purposes.  Firstly, to motivate the sales person to aim to exceed target and secondly, to confirm the parameters in the sales Comp Plan yield the expected commission payments.
  • Timelines
    Ensure that sales compensation plans are prepared and issued to your Sales Team in a timely fashion.  Ideally, this should be done before the start of the first quarter of the financial period. It’s important for your Sales Teams to know what their targets are and what they will earn as they achieve them!

Once the plan has been written and issued to the Sales Teams, it is vital that they receive regular reporting to be able to track their performance against their targets. They will need actuals each month, possibly more often, and they will need a commission statement at the end of each month.

This activity usually sits with Finance and sometimes HR, and will form part of their regular activities.

Successful Sales Compensation Planning is only successful if the Sales Teams feel engaged and motivated by it, so it’s vital to ensure continued reporting against it. If you have an engaged and motivated Sales Team you are able to maximise your Company’s income generation.

If you would like to know more about Sales Comp Plans and how they can improve performance in your business, Sunflower can help.