If I haven’t learned anything else about managing sales, I’ve learned this: If you want people to help develop business, they have to have skin in the game. We’ve made mistakes along the way with how we’ve paid people for sales results. What’s the best way to compensate salespeople? Appreciate the suggestions!
Thoughts of the day: It’s about more than bringing in sales. Watch that your best salespeople can be top earners relative to other options they might come across. Be mindful that even salespeople who are knocking it out of the park may want to build a career.
We often see unintended consequences — sales plans set up to solve one problem and create others. The smartest salespeople will do what the compensation plan drives them to do. Make time before launch to play “what if,” so you know your company can live with the results. Keep things as simple as possible to limit unexpected outcomes.
If you, as the owner, feel like the weight of bringing in sales is all on your shoulders, check what’s missing. Are salespeople given the incentive to develop their own leads? Nurture them? Close them? Or does your plan drive them to stand back and support your efforts? If the plan seems right, is it that you cherry-pick opportunities that are ripe, and then get frustrated when they bog down, instead of letting your salespeople do their jobs start to finish? If the goal is to build a team effort in sales, then reward company-wide results instead of individual outcomes.
Make sure you address the real problems, not just the surface, when adjusting any compensation plan. Measure individual and company wide results. Consider bonuses for optimum performers. When making changes to your comp plan, give salespeople advance warning so they can prepare for the shift.
Calculate payout based on gross profit, not sales. We’ve seen comp plans drive companies into the ground, as salespeople get paid to bring on low-margin and even unprofitable accounts. Encourage people to cut loose sinkers and focus on margin, even if total sales volume stays flat for a while.
Keep in mind that salespeople are always out in the market, observing and being observed. The good ones regularly get offers to consider other options. Make sure that they are committed to the work of your firm and bonded to you.
Find a way to monitor competitors. Build your comp plan to pay above, at, or below market depending on how hard each salesperson has to compete to find, nurture and close the business you want. Product leaders with lots of marketing skill can open doors easily; startups have to dig deep. Competitive advantages drive higher prices; commodities make it harder to sell big margins. The quantity of buyers impacts the ability to find qualified prospects. Long sales cycles and customized solutions mean more things can go wrong with any given sale.
Find out what motivates your salespeople short and long term. Some may want to stay in sales forever. Others may want to expand their horizons by getting experience in other areas of the business, by going to school, or by moving into management. These choices are personal — there is no cookie-cutter solution here. Show the keepers a way to build toward their long-term goals as they maximize their contribution and compensation short term.
Looking for a good book? Try “The Future of Sales Compensation” by Chad Albrecht and Steve Marley.