- Identify the best performance measures. The goal for sales organizations is to reward their best salespeople and inspire underperformers to strive for better.
- Alignment is necessary. Sellers should understand what is expected and align with sales goals that are fair and attainable, yet still require stretching to achieve.
- Four measurements to inform sales compensation. There are four types of measurement when it comes to looking at performance to inform sales compensation: financial/production measures, strategic measures, input and activity measures and subjective/judgment measures.
- It’s all about timing. A complete evaluation is vital to the incentive plan’s design process to get this balance right. Do this due diligence before you roll the plan out and regularly once the program is in action.
Sales leaders must identify what incentives will drive good sellers on their team to be the best and what will consistently motivate them.
Sales reps are motivated by a clear line of sight between their performance and pay. The key is to have both an ongoing analysis of their historical performance and a comprehensive personal sales forecast.
But what happens if their forecast and quota success don't align with the compensation payout? What if they're earning less than they feel they deserve? This confusion can quickly erode trust and overpaying low performers can damage the motivation of the rest of your team.
Overall, the goal for sales organizations is to reward their best salespeople and inspire underperformers to strive for better. So, how do you recognize your best performers and incentivize those who need to improve?
Alignment Is Needed
To get the best out of your team, your incentive plan should be controllable, measurable and aligned.
For a seller to understand how a sales incentive plan affects them, it needs to be controllable. Sellers should understand what is expected and align with sales goals that are fair and attainable, yet still require stretching to achieve.
Next, to ensure a plan is measurable, it should demonstrate clear and effective communication of sales incentives and provide ongoing visibility of sales results to sales teams. Regular reporting on seller performance is also important to ensure that sales trends and overall sales direction are easy to action.
Lastly, it’s important to connect the strategic business objectives with the sales organization. Any sales incentives plan must drive the business' performance but also align with the key objectives of the sales management team.
Course: Sales Compensation Course Series
The bottom line: don’t over-engineer it; simplification is key.
Stick to three or fewer sales measures to give sellers a clear focus. When it comes to driving performance and measuring against targets, fewer objectives deliver more in the long run.
Four Types of Measurement to Inform Sales Compensation
Traditionally, there are four types of measurement when it comes to looking at performance to inform sales compensation:
- Financial/production measures
- Strategic measures
- Input and activity measures
- Subjective/judgment measures
A sales incentive plan for direct sellers should have at least one financial or production measure, and it should be the focus for the seller. Typically, financial/production measures are core to most incentive plans. They focus on sales dollars, margin or units, and most often measure volume. You should tie any targets directly to the organization's financial success, including gross profit, net profit, billed revenue, contract revenue and total billed revenue.
What are your strategic priorities? Do you want to retain customers and improve customer service? Improve overall sales quality? These drivers usually go hand-in-hand with monetary measures and are often of high value to the business. If a plan has a financial/production measure, it’s common to see a strategic goal that helps drive overall revenue or production.
Input and Activity Measures
You should also focus on your sales professionals' activities and milestones. To do this, it will be important to understand what actions they are taking day-to-day. Ask yourself: “How many qualified leads have they generated?” or “How many sales conversations have they had?” You can add this to the incentives plan when you have significant milestones to hit.
If you have defined a set of behaviors that you want your sellers to demonstrate or personal development objectives for individual reps, you may want to add this to your incentive plan. It is important to keep in mind, however, that the softer, less quantifiable skills are among the most challenging areas to measure, and as a result have the least weight in the measurement hierarchy.
As a result, these measures should be used sparingly and only as a secondary or tertiary part of your incentive plan.
Timing Is Everything
So, you have a carefully constructed, clear and agreed upon plan. Your people know what you expect from them and how they earn their incentives. Now it’s time to ask yourself: How often should I be measuring performance?
Regular check-ups against sales targets are valuable, as they allow you and your team to adjust tactics as needed. Too often, the data won't be enough to uncover patterns and trajectories.
Standard periods to analyze data include monthly, quarterly and semiannually. With a cumulative period, holding excellence payouts back is normal until you've calculated the total results.
The right strategy is vital. The finance department may prefer annual pay, but this can de-motivate representatives if they fall behind their quota early in the year. Equally, plans that contain a feature in which each measurement period is standalone might keep sellers at the top of their game, but at the cost of overpayment.
A complete evaluation is vital to the incentive plan’s design process to get this balance right. Do this due diligence before you roll the plan out and regularly once the program is in action. Typical compensation problems you may encounter include overpayment, underpayments, high costs of sales, poor performance distribution and plan “gaming.”
A tight evaluation process with the right analytics helps confirm if the plan works and whether you need to make course corrections.
Evaluate Your Sales Incentives Plan
Evaluate your sales plan against these three criteria:
- Financial: How is the plan operating, and what are the costs (i.e., salesforce earnings and the company's return on that investment)?
- Objective: Is the plan driving the right behaviors and working as designed?
- Performance: Do you have the payout balance right? Are the top earners the top performers?
Creating an incentive plan that succeeds for your people, your business, and, let's face it, your customers, should be a priority. By following these guidelines and designing a plan in a logical and organized way, you can help retain your good reps and motivate your underperformers.
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