Measuring return on investment (ROI) in sales compensation plans and optimising the ROI in your plans is important in the cut-throat world of business today, when companies spend enormous amounts on sales compensation and the results of these investments must be evident to drive business outcomes. Here is how organisations can measure sales compensation investments and enhance the ROI in the plans.
1. Establish Clear Objectives
The starting point for creating a solid sales incentive plan is clarifying which business goals and objectives the company wants the sales compensation to enable. If they need to increase market share in a new region, then the sales compensation plan needs to motivate their sellers to focus on winning new customers in that region. Companies can get a better return on their incentive investment by tying compensation to corporate priorities.
2. Implement Data-Driven Metrics
And finally, ROI is best measured through data-driven metrics that quantify the effect of the sales compensation plan on the current conditions within an organisation. Companies and their representatives can answer the question ‘Was it worth it?’ by analysing key performance indicators (KPIs) such as sales growth or profitability, as well as metrics such as customer acquisition cost or average deal size, which shed light on the impact of compensation on sales outcomes. As a recent article in the Wall Street Journal noted, even a simple measure such as the ratio of compensation to revenue generated can help companies to spot trends and possibly readjust the plan over time.
3. Regular Performance Reviews
The process of optimising your sales compensation plans will need to be continuous, and regular performance reviews will help determine the plan’s value throughout the year. For example, plans should be reviewed quarterly or semi-annually so you can evaluate how the incentives are working. Run the necessary data to see if you’re attracting the sales people you want using your sales compensation plan, watch for any areas that could use adjustments, then involve the sales teams in the review as well. If the plan has one area that’s not producing the predicted behaviour, adjust that aspect of the plan or the incentive given.
4. Foster a Culture of Accountability
Accountability promotes an environment where sales reps understand that their pay is linked to performance Likewise, when sales reps are explicitly told how their pay is determined – and what the sales metrics are that will determine pay – they are more likely to do whatever it takes to achieve those metrics and attain payout. For example, the company might deploy a dashboard that shows up in real time how the sales rep is meeting his or her targets, and how high payout is therefore likely to be.
5. Leverage Technology for Optimization
Sales compensation management software with both high-level sophistication and extreme granularity in measurement can drive exceptional performance by getting ROI right. These advanced platforms combine real-time analytics, visibility, predictive tracking and more, such as leveraging AI to determine which compensation plans will generate desired behaviour with an AI sales compensation system that can simulate results and pre-emptively adjust the structure of compensation. In conclusion, designing and managing a sales compensation plan that is highly cost-effective (ie, maximises ROI) requires a carefully crafted approach that includes establishing strategic objectives, deriving those objectives with data-driven metrics, regularly reviewing performance against those metrics, establishing a culture of accountability, and leveraging technology to enable all the above and more. If all these best practices are followed, then the sales compensation plan can be designed to drive the desired outcomes for the business and, more importantly, maximise ROI of their investment in these plans.
