Factors for Successful Compensation Plans – Define your Roles
“I just don’t understand why we aren’t seeing higher growth! The incentive plan should be highly motivational (its 100% variable, after all) and I want everyone to make a ton of money under the plan, but it seems like some of the [reps] are content where they are.” – Typical Sales Manager or Owner
There are six such key factors which can hinder the success of any sales compensation plan, no matter how expertly designed:
Time on Task
Ability to Execute Task
This article will focus on the 2nd factor, Role Clarity – the most important (and unfortunately most often neglected) part of the growth formula in successful compensation plans. Other factors will be addressed in other blogs.
The most crucial task for successfully driving growth in any organization is to provide crystal clear role clarity to the staff. This goes far beyond what is typically found in an HR “Job Description” and must really address the nature of the role. Time must be spent interviewing the sales force, perhaps even riding along with them on sales calls or otherwise spending “a day in the life.” In our experience the reps’ perception of their company’s sales strategy and business objectives are never 100% aligned with that of the management team. Furthermore, in the majority of cases there was at least one significant difference between how the reps were selling and how management believed they were selling, whether it was the amount of time spent with clients versus on administrative tasks, to the amount of time spent cold calling versus revisiting existing accounts. Through surveys, interviews and/or focus groups conducted by someone whom the sales reps trust and who has the full confidence of the management team, the identification of these gaps can be made and steps can be taken to close them.
Once the gaps have been identified, management must determine WHY the reps are selling the way they are and how best to change this behavior. Often the easiest step is for management to go through a series of questions to help THEM identify the desired selling role, and then communicate this vision to the reps. To help, listed below are some sample questions that will improve role clarity for both the sales reps and the management team.
Is the product being sold as a single product or a bundled solution?
How complex is the product being sold? What specialized skills or training are needed to sell the product?
How long is the typical sales cycle? What is the shortest it could be? The longest? Are there key milestones along the way that are tracked by the organization?
Who is the primary buyer – is it a single person or a group or team? How many “influencers” must be convinced prior to making a sale?
What is the customer perception of the seller? Is he/she a service provider (e.g., “I want the product cheap and now”) or a trusted advisor (e.g., “I need help understanding what my options are and what might be the best solution for me, even if that means not buying this particular product.”)?
What will be the customer’s primary decision factor: price or value?
What is the typical deal size? (It is more important to define this in a relative sense within the organization rather than in any absolute sense, as a large deal for one company may be a blip to another.)
Should most revenue come from new or existing customers? Is that different from the current new/existing mix?
Should the rep try to make the most from each deal, or instead focus on building long term, highly profitable (and stable) customer relationships?
Time Allocation Characteristics
How much involvement should the rep have after the sale and what type of involvement (service, installation, collections, complaint handling, billing issues, etc.)?
How many active customers or prospects SHOULD an average rep have? How many do they ACTUALLY have? What’s the reason for any difference?
How much time should the reps spend cold calling? How much time do they actually spend cold calling?
Developing answers to these questions can help a company define and group roles so that incentive plans can be designed in a coordinated and logical fashion. The primary determinant of sales compensation design should not be the product sold, but the selling method used. When looking across an organization, roles with similar answers to these questions should have plan designs that are similar in structure. For example, roles that focus on new customer acquisition with high dollar sales and a long sales cycle will need to be compensated very differently than roles focused on short-term, highly transactional new customer acquisition. Ask the right questions and sales roles and the way they should be organized becomes clear. The roles can then be reinforced with motivating and value-creating compensation plans which are supported by efficient and effective recruiting, training, communication, and administration.