The answer depends on several factors, some of which can be hard to determine. Consider this: High turnover among sales staff may appear on the surface to be a bad thing. But if the skills of entry-level sales reps are adequate for the business you’re in, turnover may simply signal that your sales staff have done well and are now ready to move on. Why pay more for experienced talent if it’s not necessary?
On the other hand, don’t assume that your sales team is productive just because they are making their goals and not complaining. Perhaps they’re content to mine the established customer base because your compensation plan doesn’t encourage them to develop new business. An extra incentive for new accounts could motivate the sales staff and increase your market penetration. Then again, if they are paid more for new business, will they just go for the easy sell, pushing the cheapest item on the sales floor simply to get that new customer bonus? In that event, you’ll be paying them more for generating less revenue!
The key to assessing your sales comp plan is to measure it against the goals of your business strategy. Ask yourself:
1) Are your sales people demonstrating the behaviors you want to see?
The plan should be structured to reward the behaviors that are most likely to drive the strategy and achieve your business objectives. If the answer is to sell more big ticket items, and you are not seeing this, then you need to be sure your plan incorporates generous incentives for selling the right products and services. If the answer is to help your business serve a new demographic, then think about including a bonus for the rep who opens the most new accounts.
2) Am I losing reps to competitors who pay more?
People leave for a variety of reasons, and in some cases this is a good thing, but if you are losing good people to competitors and you think compensation might be the reason, ask yourself this: is your compensation plan competitive in today’s talent market? In other words, if you have to hire new sales staff, will you be paying enough to entice the best people to come to work for you?
3) Does the plan seem to effectively motivate some reps and not others?
You want the plan to motivate everyone on the sales team and to be perceived as fair, but different people are motivated in slightly different ways particularly as they mature and life situations change. Does your plan work for all sales people, the old hands as well as the up and comers?
4) Is your cost of sale inline with your business goals?
If you have a plan and stick with it in spite of fluctuating market conditions and changing sales volumes, you might find that your costs are too high relative to your output (your CFO will usually give you plenty of warning that this is happening) and you may need to make sure your sales comp plan scales effectively with sales production. Basic commission at the low end and accelerators at the higher end of performance can be a great motivator for reps while keeping costs inline with business goals.
Taking the time to answer these four questions will go a long way toward determining if your sales compensation plan is or is not effective.
To your success!
Eliot received his B. Comm. from Carleton University and has been honored as a Top 40 Under 40 Award winner.
He co-authored Sales Recruiting 2.0, How to Find Top Performing Sales People, Fast and provides regular insights on sales team management and hiring on the Peak Sales Recruiting Blog.
Latest posts by Eliot Burdett (see all)
- 20 Of Our Favorite Books About Sales Management and Sales Leadership – October 20, 2023
- How To Make Progress On Your Sales Goal Without A Sales Leader – September 15, 2021
- Augment Your Recruiting Strategy During “The Great Resignation” – July 26, 2021