- The investment in sales comp continues. Despite murky economic conditions, organizations are still elevating their sales compensation budgets.
- Too optimistic in goal setting. In setting 2023 quotas, leadership was at times overly aggressive with growth goals. However, the optimism isn’t reflected in sellers’ year-to-date actual quota achievements.
- Profitability prevalence. In the current macroeconomic environment, organizations are increasingly focused on profitability.
- Marketing and client service roles. In addition to sales, marketing and client services roles have become crucial customer touchpoints. To reward those roles accordingly, we see a trend of including them in sales compensation plans.
How has 2023’s tumultuous market conditions affected business planning? How do companies preserve profitability via a sales compensation plan? These are only two of the hot topics affecting sales compensation today.
In a recent survey by the Alexander Group, more than 350 executives shared their insights on these prevailing compensation topics, and four key trends emerged:
- Companies are investing in sales compensation even during times of uncertainty.
- Companies were overly optimistic in goal setting.
- Profitability is gaining prominence in sales compensation structures.
- There were emerging and mixed sales compensation practices for marketing and client services roles.
Investment Continues
While the market outlook for 2023 and early 2024 is uncertain, rising interest rates and record high inflation are only a few of the challenges that businesses are facing. However, amid this landscape, many companies continue to increase their sales compensation budgets.
When compared with the previous year, a substantial 62% of respondents indicated an increase in their sales compensation budget. One-third (33%) of companies attributed this increase to a dual effect of increased sales headcount as well as increased sales compensation payout. With the increased budget, it is imperative to monitor and evaluate the ROI of sales compensation dollars.
Action Items for Your Organization
- Step 1: Design a sales compensation program that aligns with the objective of the business. Leverage benchmarks for pay levels and pay mix particularly in this rapidly changing environment.
- Step 2: Model the compensation plans under various performance scenarios to ensure the new plans fall within the commission budget.
- Step 3: Conduct quarterly pay and performance analysis on the program to understand the ROI as well as accrue appropriately for expected commission payments.
Overly Optimistic Goal Setting
Quotas are a powerful tool, but overly aggressive quotas can demoralize sellers and derail revenue goals.
In setting 2023 quotas, leadership was at times overly aggressive with growth goals. However, the optimism isn’t reflected in sellers’ year-to-date actual quota achievements. When setting quotas for the current fiscal year, 59% of companies planned for the majority of sellers to achieve quota. In comparison, the year-to-date projection indicated that only 41% will actually have the majority of sellers achieve quota.
Action Items for Your Organization
- Step 1: Analyze historical attainment data to establish a baseline and calculate YOY changes.
- Step 2: Determine the quota-setting methodology for the organization (if one does not exist)
- Step 3: Review historical quotas to understand the efficacy of the quota-setting methodology. Combine be sure to diagnose if quota distribution is skewed and if the YOY changes could be attributed to quotas, comp plans or perhaps sales rep talent.
- Step 4: Evaluate attainment to quota on an ongoing basis (quarterly).
Profitability Gains Prominence
In the current macroeconomic environment, organizations are increasingly focused on profitability. More than two-thirds (71%) of respondents indicated profitability is either included at the sales management level and/or frontline sellers’ compensation plans.
Currently, the majority of respondents incorporate profitability in sellers’ plan through an add-on or modifier. However, going into next year, 41% more respondents foresee incorporating profitability as a core measure.
Action Items for Your Organization
- Step 1: Determine the sellers’ control over profitability, evaluate pricing strategies, assess quota setting abilities, etc. Done right, the sales compensation program can directly drive profitable sales behaviors.
- Step 2: Determine how much focus the organization wants to have on the profitability metric in the compensation plan. Profitability can be included as a stand-alone measure, as a modifier on the revenue measure. Additionally, another way to drive profitability is by product mix
- Step 3: Ensure that tools and systems sellers have access to include up to date data on profitability to ensure transparency of the compensation plan.
Mixed Practices
Buyer preferences and multi-mode interactions are evolving. In addition to sales, marketing and client services roles have become crucial customer touchpoints. To reward those roles accordingly, we see a trend of including them in sales compensation plans.
Fourteen percent of survey respondents have one or more marketing roles on sales compensation plans while 19% have one of more client services roles included. As expected, these roles typically have less aggressive pay mixes, averaging 75/25 for marketing roles and 72/28 for client services roles.
A potential benefit of having marketing and client services on sales compensation plans is to help ensure alignment across the commercial organization, optimizing customer experience and driving revenue. To determine sales compensation plan eligibility of those roles in your company, be sure to identify their level of customer contact and impact on quantifiable sales outcomes.
Action Items for Your Organization
- Step 1: Confirm the role is eligible to be on a pay-at risk-comp plan: Does it persuade customer to purchase? Can you set accurate quotas?
- Step 2: Align pay mix to the level of persuasion. Center practice dictates that client service and marketing roles tend to have less pay at risk than core sales role.
- Step 3: Select measures that these roles have the ability to impact to include in the compensation plan.
Optimism for 2024
Despite 2023’s market conditions, sales compensation leaders have an optimistic outlook toward budgeting and quota setting. Sales compensation continues to be a crucial lever for achieving business objectives (e.g., profitability) and helps ensure alignment among all functions across revenue organization.
With the proper planning process and best-in-class sales compensation programs in place, companies can achieve strategy growth objectives even amidst dynamic market changes.
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