KEEP IT SIMPLE WHEN IT COMES TO SALES COMPENSATION

By Matt Smith

In an earlier blog post that cited some key data from a recent CSO Insights report on best practices in tracking sales metrics, we noted that companies that measure 4-7 key sales metrics had higher sales performance than companies that tracked 3 or fewer key sales metrics. My first reaction when I read these statistics was that if measuring sales metrics drives sales performance then compensation plans should be used to reinforce those behaviors. The problem with this approach is that it adds incredible complexity when calculating commission compensation (and in some cases the payout associated with certain metrics would be so low most sales people would ignore them completely).

So if measuring sales metrics drive sales performance how can a firm get the desired results with the least amount of complexity?

There are two key tenets in the sales world, sales people are motivated by money and companies need new revenue to survive. When it comes to sales compensation the carrot is to highly compensate sales people to bring in new logo business and at the highest possible margins.  The problem with this approach is that it can cause a sales person to neglect key activities such as updating the CRM system; following established sales processes and accurate forecasting, etc.. These activities are critical to running an efficient company – and sometimes a stick is needed to make sure they are completed accurately and on time.

Rather than using the carrot and stick approach to this issue I prefer the small carrot / big carrot approach.  You may want to consider a quarterly bonus or commission accelerator for those team members that religiously follow the sales behaviors you desire. This bonus or accelerator needs to be large enough to be meaningful and would be on top of commissions for actual closed deals.  I especially like the accelerator approach because sales people can’t control the timing of most sales so they will stay continually motivated to follow all the sales rules rather than risk losing commissions unnecessarily.

When designing nest year’s compensation plan include key stakeholders from sales finance, operations, and IT.  Strive to keep your compensation plans simple and easy for you and your sales person to calculate, and always pay them on-time.