Common sales compensation plan issues
You’ve developed a solid compensation plan for your reps, yet there are still issues that need to be ironed out. Addressing these topics from the outset will ensure happier salespeople and no problems when it’s time to cut the checks.
Setting quotas can be like gambling. If quotas are set too low, the company pays out money it doesn’t really have. If the quota is too high, reps can get frustrated and leave. What’s a fair quota for your reps? Analyze the experience of the seller, the market, and their potential. Keep in mind that salespersons need to believe that although their sales goals are difficult, they are achievable. Set a goal that’s fair for the company, yet complements the individual. If you set a quota at a level that’s profitable for the company, it won’t matter that you’re paying reps more money; you’ll be happy to do it.
Paying for repeat business and renewals.
Repeat business equals more profit, and we know that it costs more to generate new business than it does to sell to an existing customer. Over the last few years the business climate has changed, and some organizations have reduced or eliminated the pay for repeat business, hoping to increase the bottom line. The question posed is, Should reps be paid for repeat business and renewals, and if so, should the commission be the same as for a new business sale? Consider what is most valuable to you, for example, new customers, profitable customers, or highest potential customers. The extent to which you need to pay for repeat business and renewals depends on the degree to which the current plan supports your new business goals and sales strategies.
How to pay for bluebirds.
Now: We’re not talking about selling a large bunch of feathered friends, we’re talking about pay for an unexpected, very profitable, or easily made sale. If a deal “flies” in and lands in the lap of your rep, does he or she get the same commission? If your top rep is making a rock star salary based on luck vs. work, it may be time to restructure his pay plan. If you have a hard-working rep who occasionally catches a bluebird, pay the same. That occasional gift can keep a rep motivated during tough times.
Rewarding for customer satisfaction.
Organizations with higher than average levels of customer satisfaction experience higher profits, higher sales, and higher customer loyalty levels. Differentiate yourself from your competitors by offering a bonus to your reps for high customer rep scores. You’ll keep your salespeople and your clients happy.
Paying for profit vs. revenues.
Should you pay salespeople based on the amount of profit that the sales produce — or should you pay based on the amount of revenue that is generated? What is your objective for sales this year? Is it to generate revenue (market share) or profit? Match the goals of the company with the compensation plan for the best results. However, if you plan to pay on profit, make sure the profit ratio is clearly defined. Salespeople will walk away from deals (and jobs) if they think there isn’t enough profit for them to make commissions.
Keep the compensation plan simple and incentivize multiple behaviors. Pay too much or too little to reach your goals, and you’ll hinder your ability to keep your reps, and close the deals. •
Christine Miller is president of Miller Consulting LLC, which helps small businesses identify, qualify, develop, and close targeted sales leads, and helps organizations find more value in existing relationships. She can be reached at email@example.com.