It’s a dog-eat-dog world where commissions reign supreme – so deciding how to design a compensation plan for salespeople is important because, ultimately, it’s about results. Organizations want to motivate the sales team to drive sales – to meet opportunities and, most importantly, to drive results. An incentive sales compensation plan is designed to do just that, but it also aligns the efforts of the sales team with the strategic goals of the organisation. Plans that achieve this alignment and provide incentives that truly motivate sales teams don’t just happen: designing a robust plan requires a strategy, a systematic approach, and knowledge. The following six steps provide the basis for building incentive compensation plans that truly deliver results. Examples accompany each step.
Table of Contents
Step 1: Define Clear Objectives and Key Performance Indicators (KPIs)
FAQ 1: Why are objectives and their corresponding KPIs so crucial to incentive planning?
Step 2: Understand Your Sales Team Dynamics and Motivations
FAQ 2: How can organizations identify the motivations of their sales team members?
Step 3: Design a Balanced and Transparent Compensation Structure
Q3. Non-monetary Incentives Give Examples of Non-monetary Incentives
Step 4: Implement Performance Measurement and Tracking Mechanisms
FAQ 4: How can organizations ensure accurate measurement and tracking of sales performance?
Step 5: Continuously Evaluate and Iterate Based on Results
FAQ 5: Why is it important to continuously evaluate and iterate sales incentive plans?
Step 6: Foster a Culture of Performance and Recognition
Step 1: Define Clear Objectives and Key Performance Indicators (KPIs)
Every decent incentive compensation plan begins with setting goals, and that includes setting key performance indicators (KPIs) to measure your progress toward those goals. Those KPIs should be directly linked to the business objectives of the enterprise, whether those are revenue growth, customer acquisition, market share, penetrating new markets and so on. A software company whose business plan is essentially to grow market share might set KPIs such as: number of new clients acquired; number of subscription renewals; number of upsells or add-on sales made over the time of this goal period.
FAQ 1: What are the benefits of defining clear objectives and KPIs for a sales incentive plan?
They make it clear up front what actions contribute to success, they align everyone in the sales team to the organisation’s goals and they allow you to measure performance and effectiveness.
Step 2: Understand Your Sales Team Dynamics and Motivations
A point of motivation and style for one salesperson might be a complete turnoff to another But the best thing you can do to understand your sales force and design an incentive programme that will have the greatest motivational impact is to use surveys, interviews and assessments to map what factors might motivate your sales team. Some might be reward or money driven, whereas others might seek recognition, career development opportunities or a better work-life balance.
FAQ 2: How can organizations identify the motivations of their sales team members?
Surveys, one-on-one discussions, personality assessments and other methods allow organisations to define the drivers of their sales force.
Step 3: Design a Balanced and Transparent Compensation Structure
Getting the mix of base salary, commissions, bonuses and non-monetary incentives just right (transparent and balanced) can indeed be a challenging management task. But if your sales incentive structure ‘repays’ the team in line with what they put in and what they achieve, you are already ahead of 80 per cent of the businesses out there.
FAQ 3: What are some good examples of non-cash rewards for the sales incentive plan?
Such non-monetary incentives can include recognition programmes, awards, flexible work terms, career advancement opportunities, and training and development programmes.
Step 4: Implement Performance Measurement and Tracking Mechanisms
Second, effective measurement and tracking of performance are the keys to the success of a sales incentive plan. Use good performance-measurement systems, take advantage of CRM and other types of technology, develop reporting that provides clear metrics around how teams and members are doing, and make sure these activities are regularly reviewed and analysed.
FAQ 4: How can organizations ensure accurate measurement and tracking of sales performance?
There are a few concrete ways an organisation can make sure that sales performance is measured accurately and tracked effectively. This can be achieved by defining specific metrics and KPIs, training the relevant employees on the data collection and analysis process, and using technology solutions such as CRM platforms and analytics software to carry out these operations.
Step 5: Continuously Evaluate and Iterate Based on Results
A sales incentive plan is never set in stone and, if the word is to be applied, it’s a dynamic sales landscape. Therefore, there should be consistent evaluation of the effectiveness of the plan. Check in with sales organisations and sales team members to measure the effectiveness on an ongoing basis, seek feedback from managers and other interested individuals, and adjust, iterate or pivot depending on the results and the feedback.
FAQ 5: Why is it important to continuously evaluate and iterate sales incentive plans?
Through frequent assessment and iteration, sales incentives can be kept in step with organisational goals, can respond to changing conditions and needs and to what will motivate the sales team, and can be responsive to market changes and competitive dynamics.
Step 6: Foster a Culture of Performance and Recognition
Outside of pay, create a culture of performance and recognition, with recognition programmes and awards, celebrated achievements and career opportunities – as well as training and skill development programmes. Promote a culture of collaboration, where team members feel rewarded and valued, and that they have a way to contribute to the overall success of the team.
To cap it all off, there is no one-size-fits-all approach to incentive design. It necessitates being in the weeds of your business, understanding the nuances and intricacies of your sales culture. But with the right approach and the right framework in place, you can do it. Armed with the six best practices of incentive design, along with the preceding examples and field notes, you should be able to craft a tailored pay-for-performance plan for your business, one that incentivises performance and compels your salesforce to consistently deliver results that contribute to the bottom line. Good luck and happy incentive-crafting!
