For Sales Operations teams, one of the major strategic Big Questions is how to design a sales incentive plan that balances profitability with the need to engage the team. You want to incentivize business growth, as well as salesforce engagement. Here are five things to consider.
1. A sales incentive plan must define how you want to space incentives in the sales funnel. How upstream? How downstream? For example, do you offer incentives to a sales rep who ‘source qualifies’ as in enters a lead in the system, or only when the lead converts to an opportunity? And do you incentivise sale closing or early adoption of a product? There are many decisions to make.
2. Do you want a simple plan that offers incentives for different levels of performance but no branching in the plan. ‘Climb the ladder.’ Or do you want a more complex plan with some branching? We’ve seen some very elaborate plans in which an achiever can be over-incentivised if he/she hits milestones that lead away from, so to speak, the centre of gravity for the company.
3. Model-versus-outcome How should incentives be structured to reflect performance relative to a model versus actual/outcome? For example, do you want the incentive to be to exceed the expected amount, or do you want to reward more for team performance? 4. Regional differences Finally, the plan must account for different incentives by region.
4. Profit Margin-Based Incentives: Sales reps should be rewarded for making profitable sales, not necessarily the highest revenue. For example, a rep who lands a high-margin order deserves a higher commission than one who gives large discounts. Commission tiers should be tied to profit margins so that teams focus on deals that maximise the company’s bottom line.
5. Individualised Quotas by Role: Different sales roles – especially new business developers, account managers and customer success managers – need to be created for individualised quotas commensurate with their profitability. For example, a new business rep is responsible for attracting profitable accounts, whereas an account manager might have a slightly different quota for upselling to seven-figure high-touch accounts.
6. Sue for too little profit or too little growth: Give managers and sales reps incentives to balance short-term sales with longer-term earnings. Multi-year contracts or subscriptions, which are more likely to promote sustainable revenue, can be rewarded more than single purchases.
7. Carefully balanced reward structures: an effective incentive scheme contains both monetary and non-monetary rewards. Non-pecuniary incentives work well if coupled with career development and visibility opportunities.
8. Rapid Feedback and Compensation: Sales teams love rapid feedback and compensation. Think about paying monthly or quarterly on hitting profit-related goals rather than waiting for the year-end reviews This consistently keeps representatives enthusiastic and participating in the entire year rather than just in the final month.
And by including all, Sales Operations teams can design a compensation plan that maximises profits while retaining the motivation of sales teams to perform at their best, the whole time getting them to rally around a goal that’s aligned with the company’s financial health.
