It would be easy to think of that organisation as being in the business of using sales compensation to motivate people. But that would only be part of the story. In the world of sales compensation every decision you make weaves a story, and the story of every KPI is one of success or decay. Every organisation has to figure out the right KPIs. It’s not only a matter of numbers. It’s a narrative of strategic alchemy. Picking the right compound of KPIs can lower incentive spend without reducing the chase for profit. Let’s examine three organisations who tell three stories with dignity, courage and, most importantly, wisdom.
The Symphony of Revenue Quality
Enter our first hero, a software product company, blazing a trail in the cut-throat tech space: Revenue quality metrics to the rescue! In lieu of lead indicators such as gross sales, the firm chose KPIs such as Customer Lifetime Value (CLV) and Upsell/Cross-sell Ratio as the targets for their employee incentives plan. Alongside the attractions of promoting consistent and sustainable growth – by incentivising sustainable high-quality revenues – the utilisation of revenue quality indicators allows companies to cut down on incentives, as you no longer have to motivate salespeople to sell to your existing customers too little or too often. The final outcome in the perilous tech start-up format, where your business is constantly one missed target away from death by starvation is easy to picture in your mind’s eye. Incentive spend was down and revenue rich – oozing quality.
The Dance of Margin Enhancement
Chapter 2 highlights a manufacturing behemoth tackling the dilemmas of being both profitable, and generous with incentive spend. Its story is told in the measures of margin expansion, with drivers that shuffle sales towards products with the highest margin and the most strategic deals, using KPIs like Gross Margin Percentage and Product Mix Profitability. It is a story of profitability, where with every sale the value added is not just to the top line but to the bottom line as well.
The Heroic Quest for Customer Satisfaction
In our final tale, a service-led organisation aims to conquer the world, led by its quest for customer happiness! They managed to achieve this by deploying a series of KPIs such as Net Promoter Score (calculating the likelihood of referrals) and Customer Retention Rate to direct the incentive plan for employees, which turned customers into loyal promoters of the company’s products. Not only did this substantially decrease churn rates, it also opened the door to new avenues of profitability, as satisfied customers became repeat purchasers and brand ambassadors. Their story became the rallying cry for other organisations, wanting to continue to shrink the incentives budget while increasing profits.
The Wisdom of Continuous Adaptation
And is there a recurring moral that connects these stories to an epilogue? In a word: yes, and it’s this: Companies that were most successful in their approach to designing and implementing KPIs didn’t consider the selection of KPIs as a one-off decision; instead, they continuously treated it as a story that’s an ongoing process. Their focus on routinely reviewing the KPIs and making more or less course corrections as the market dynamics drive them to do so ensured that their incentive plans remained relevant and effective. It was about that alchemy of KPIs being a story that never ends, not a script.
In the magical world of sales compensation, where every organisation writes its own legend, the KPIs are the pen that writes the story. Designing incentives that encourage sales while keeping incentive spend low and profitability high is how the story is written. The challenge of compensation is turned into a story of alchemy – a legend of strategic success that many in the organisation will believe rings the right notes for sustainable growth and lasting success.
