The top 3 reasons your compensation plan is not driving new sales
While we would like to think that people always do the right thing, or will consistently do what is outlined in their job description, or what they are coached to do, the simple fact is salespeople will do what they are paid to do. Period. Many organizations have difficulty understanding why their sales teams are not more productive and, while there may be many reasons, you might first take a hard look at how you are compensating your team, and, thus, motivating your team’s behavior. There are three very common, but often deadly, mistakes that companies or business owners make when designing their compensation plans.
1. Not enough focus on incremental revenue
In today’s world, sales reps are generally assigned a combination of existing accounts, along with a group of prospects and assigned a revenue target to be achieved within that portfolio of accounts. As is human nature, the sales team will naturally gravitate toward the easiest path to the most amount of income. That path will always exist with an annuitized revenue stream in accounts where there is an established relationship. While some credit should be given to the sales team for maintaining relationships and protecting existing revenue streams, paying the same commission for a dollar of annuitized revenue as you do for incremental revenue will ultimately lead to no incremental revenue. When the primary goal of the sales team, and the reason why we are willing to pay them handsomely, is to generate incremental revenue, this is a formula for long-term failure.
2. Too much complexity
While overly simplistic, flat rate commission structures are often flawed and don’t drive the most productive behavior, those which are overly complex are usually worse. I have seen compensation plans that are so complex and convoluted that neither the sales rep, nor the company, can determine how a transaction translates into commissions. For lack of clarity in the commission structure, the reps will perform in a way that they believe will translate into money flowing to them without really knowing. This will create an inability for the organization to drive consistent behaviors that are aligned to organizational goals of new account generation, revenue or profitability. Find the right balance between overly simple and overly complex by using four to six key levers that are aligned with new account growth and sales team performance will inevitably improve.
3. Lack of alignment with organizational strategy and goals
Organizations will perform better when all aspects of the company are aligned to the same goals. The sales team is no different. If the organization’s primary goal is maintaining a high level of profitability and the reps are paid on top line revenue, they will sacrifice profitability to put more money in their pockets. If you don’t have at least a high-level strategy that articulates what is important to the organization and you want to accomplish, develop one. Once you have determined the strategic priorities of the organization (top line growth, profitability, new client acquisition, geographic expansion, etc.) figure out how to imbed these levers into your compensation plan in a way that is clear, easy to monitor and coach against and simple to administrate. Additionally, develop a plan that minimizes, or better yet eliminates, internal competition and friction. To the extent multiple resources inside your organization are competing for the same commission dollar, be they channels reps, product managers or delivery resources, you will create a culture that breeds bad behavior and mistrust that will lead to lower productive and, generally, a poorer client experience. Once you get the sales team, as well as the rest of your organization, “pulling the rope” in the direction that is going to accomplish organizational goals, you will be in a much better position for your organization to thrive.
Sales team compensation is often viewed as the sacred cow. It can be a very complex topic and any changes can create anxiety for all involved. Alterations in your compensation plan can cause the sales team to be concerned that their income will fall. If not rolled out correctly and thoughtfully, it can create turn-over (which isn’t necessarily bad, but certainly can be if your top performers leave) within the sales team. Ultimately, however, if it is not creating the drive within the team to find incremental revenue sources, it is failing your company and needs to be changed.