Did You Design Your New Sales Compensation Plan or Just Rolled It Over From Last Year?

New year. New quotas. Same comp plan. Could be costing you more money than you realize. 

By rolling over your comp plan from last year you are carrying over not only measures but the incentive dollars that came along with them. If your business has changed then chances are your measures and incentive dollars should have changed as well.

Many times we see sales organizations continue to use the same measures, weights, thresholds and accelerators from year to year.

Which means your sales reps are selling to last years business and your leadership team is expecting this years results.

You should be rethinking how you structure your compensation plan when a new fiscal year begins.

1. Its Not The Same Business 

Its easy to assume that because you are going into a new fiscal year you can just take last years sales compensation plan and apply the same measures and weights. Maybe you wanted your sellers to sell a certain amount of logos or grow revenue at a certain rate last year. Those may not be your goals for the upcoming fiscal year.

Maybe your SaaS company wants to focus on expanding current accounts and driving more profitable customers. Perhaps your telecom company wants to increase the value of their customers by selling premium plans or cross selling additional products. Your Insurance company may want to sell more profitable policies or increase retention.

When you change your strategy but don’t update your sales compensation plan your reps are getting two messages. One from your leadership team and one from their sales commission.

Most likely your sales reps are going to sell to the dollars.

 2. Rolling Over Your Sales Commission Plan 

There is nothing wrong with rolling over your sales commission plan year to year. After all it is something that your sales team is comfortable with. Your finance department knows how much incentive dollars you will be spending. Your rev ops team knows how to manage the plan and you can run it on your current sales compensation software.

However you should ask yourself some questions before rolling over your plan. How did your sales reps perform against quota? Did you have too many sellers above quota or not enough sellers reaching threshold? Did you have any outliers? Are there certain areas that you want your sellers to focus more on? Did your sellers discount too much? Were there certain products or services that you wanted your sellers to focus on more? Did they? Did you have too much time spent selling things that were not beneficial to your business?

These are all questions you should be asking before you roll over your plan.

If you know that you are spending $20 million per year in variable compensation. And 10% of that money is being spent on things you don’t want your sales reps doing. That’s $2 million of dollars you are putting into question before the new year has started.

It may not be all $2 million you are spending on behaviors you don’t want. But can you say with confidence that you are paying your sales reps to do what you need them to do and generate the revenue you need?

That’s why you should be building out a business case for your sales compensation plan each year.

3. Do a Zero Based Compensation Plan Review 

Instead of asking yourself what do I want to change from last year. Ask yourself if I had to build my plan from scratch what would I include?

Here is how you can begin to build out a zero based compensation plan.

1. Know your strategy 

What are your top three priorities for the year? It can be growing revenue. Selling more profitably, increasing retention etc. You want to know what your top three goals are for the year.

What behavior do you want to see from your sales team?

Once you know what you want to accomplish this year. Ask yourself what behavior do I need to see from my sales team to get those results. If you want to increase growth in strategic accounts maybe you want to see more exec touch points from your sales reps or more expand opportunities created. If you want to increase your attach rate of new products maybe you want your sales team to generate more opportunities for the new product.

2. Build your Economics 

Once you know what behaviors you want from your sales team you can rebuild your pay mix, measures, weights, quotas, thresholds, accelerators, caps and eligibility requirements.

C. Test your plan 

You should always test your plan before launching it. Take your plan and simulate your sellers against it. Who wins? Who loses? How will their behavior change? Where will I see spikes in commissions? Am I placing enough emphasis on what I want my sales team to focus on? Can my finance team support this payout? 

These are all questions you should know the answers to before you go live with your plan.

D. Have a midyear review 

You should always have a review point during your sales year. Whether it be a change in your business, products, territory or pricing. You never know what may happen that will require you to step in and make changes to your sales commission plan.

Having a review point in place will ensure you are not trying to fix your sales compensation plan in December that you created in January.

These are just a few things you should consider when creating your new sales commission plan.

By having these discussions you will be able to ensure that you are rewarding your sales team for the behaviors you want them to display this year.