Maximizing Business Growth Through Strategic Sales Compensation

Many companies struggle with ineffective sales compensation plans, with only 21% demonstrating plan effectiveness and expressing satisfaction with their approach, according to Alexander Group’s recent Sales Compensation Hot Topics Research. So, what sets these successful companies apart?

Sales compensation is more than just a reward system; it is a strategic tool that can address business challenges, highlight priorities and drive growth. This article explores how you may leverage sales compensation to overcome obstacles and foster business expansion.

Connecting Business Challenges with Sales Compensation

When utilized effectively, sales compensation can provide organizations with a strategic edge in growth initiatives and an ability to overcome common business challenges. Growth initiatives are investments or priorities that help achieve growth goals, while business challenges are obstacles that hinder success and growth potential. Often, growth initiatives are solutions to these challenges and are strategically aligned with business objectives.

Organizations may aim to create awareness, boost productivity and profitability, or enhance customer success. They can achieve these goals by implementing growth initiatives such as:

Driving expansion through cross-sell and upsell activities with product sales performance incentive funds (SPIFs), product credit uplifts and product measures.
Securing retention with renewal hurdles, measures and bonuses.
Improving demand generation with pipeline-value SPIFs, sourced-deal bonuses and sourced-deal credit uplifts.

Sales compensation is not merely a payment method for salespeople; it can be a powerful management tool to influence behaviors, motivate actions and drive results. Companies should continuously explore how this aspect of compensation may be used to drive growth initiatives, solve business issues and quickly change behaviors.

Current Trends in Sales Compensation

Staying updated with the latest sales compensation trends is likely crucial for companies aiming to ensure plan effectiveness. Key trends include:

A staged approach. Differentiate jobs and sales compensation metrics across Identify, Land, Adopt, Expand and Renew (ILAER) stages to drive targeted performance.
Automated sales. Shift from traditional channels to digital platforms with a focus on automated sales, impacting goaling and crediting.
Data monetization. Compete on the value of first-party data solutions, affecting sales compensation design across measurability, goaling and teaming.
The manager life cycle. Use renewal and expansion metrics as indicators of success for account managers (AMs) and customer success managers (CSMs); innovative companies also use adoption metrics.
Sales and marketing integration. Blur the lines between sales and marketing, and encourage a team-based approach to revenue goals.
Evolving agency landscape. Move toward globally led designs with local flexibility, focusing on integrated selling and cross-agency collaboration.

Sales compensation is a complex and dynamic field. By leveraging the right strategies and approaches, companies can increase the likelihood that it is not just a way to pay sellers but a valuable tool to overcome pressing business challenges.

Case Study: Using Sales Comp to Acquire New Logos

A global media company, renowned for its comprehensive solution suite, had a strong foothold in the mid-market segment. However, it aspired to break into the large, key accounts sector, where competition was fierce. The urgency to acquire significant new clients was palpable.

After diagnosing its current situation, the company discovered their sales compensation plan was misaligned with their new logo acquisition goals. The plan had three major flaws:

An overemphasis on revenue. The plan focused heavily on revenue, with a single measure accounting for 80% of the incentive pay. This approach failed to distinguish between new and existing customers, offering no incentive for sales representatives to pursue new, large and complex logo opportunities.
Complexity and confusion. The plan was riddled with numerous measures, crediting rules and payout exceptions, making it difficult for sales reps to understand how their pay was calculated and how they could influence it.
Conservatism and risk aversion. The plan had a low pay mix, leverage and pay curve, providing insufficient upside potential for sales reps to exceed their quotas and inadequate penalties for underperformance.

To address these issues, the company simplified and streamlined its plan, introducing several key changes:

New logo measure. A measure with a higher weight-and-payout rate was added to incentivize sales reps to focus on acquiring new logos.
New logo credit uplift. This was introduced to reward sales reps for closing large and complex deals, encouraging team selling and collaboration.
Increased pay mix, leverage and pay curve. These adjustments provided more pay-at-risk and pay-for-performance, effectively differentiating top performers from the rest.

The results were remarkable. Within the first year, the company saw:

A 25% increase in new logo revenue, surpassing its target by 10%.
A 15% increase in new logo count, exceeding its target by 5%.
A 20% increase in average deal size, surpassing its target by 15%.
A 30% increase in salesforce engagement, exceeding its target by 20%.
A 10% increase in salesforce retention, surpassing its target by 5%.

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