As organisations increasingly adopt sophisticated design and organisational practices, designing effective sales compensation plan is critical to drive desired sales outcomes and organisational productivity. The core challenge lies in designing a system that not only incentivises revenue generation but also motivates behaviours that are conducive to long-term success, such as high-impact activities and time management.
1. Aligning Compensation with Strategic Goals
First, craft incentive plans to support the organisation’s strategic goals, instead of simplistically incenting sales volume as a KPI. For example, for a tech firm, the sales reps can be incentivised around outcomes such as client retention rates and sales-cycles, and not just around number of software licences sold. This way, sales teams will be motivated not just to get the deals but also to create strong client relationships and work as efficiently as possible.
2. Incorporating High-Impact Activities
Compensation programmes likewise hold individuals – and sales teams – accountable for activities that positively impact long-term value, not just this quarter’s revenues. The ultimate compensation reward for a sales rep at a large pharmaceutical company could include not just sales numbers, but also the number of new accounts opened – a leading indicator of acquiring new customers who will adopt new products over time – the number and depth of questions that the sales rep asks of their customers, posing the probes necessary to understand the customer’s needs, and ‘selling’ the new product to truly benefit the customer.
3. Promoting Effective Time Management
Second, there’s time management: a sales rep who spends his time efficiently will outperform one who routinely gets lost in his inbox. Microlise used to incorporate metrics that measured the ratio of time spent selling to time spent on administrative tasks when selling to financial services firms. While analysing data from CRM systems, a financial services firm might be able to reward sales reps who spend a higher percentage of time on sales activities (eg, with a prospect or client) relative to non-selling administrative tasks.
Example: A Holistic Compensation Plan
Imagine this company is a mid-sized enterprise software company, and they could design a compensation plan for a sales rep containing a salary plus commission. The commission could consist of compensation branches based on a combination of metrics: sales volume (50 per cent); customer satisfaction scores (20 per cent); number of product demos conducted (15 per cent); time-to-close metrics (15 per cent). Now, the rep is paid not only for closing.
By creating compensation plans that combine sales performance, high-impact activity and the effective management of time, we can further enhance the effectiveness of the sales team, and create an organisation that delivers revenue and sustainable success.
