Contemporary competitive aggressive business vendors uses sales Compensation plans to achieve their business objectives. Sales Compensation plans are precisely use to advices the selling organization organization on how to increase sales performance in the sales force. For example, following the changing dynamics in market sectors, increase in competition, and retooling in sales strategies, the desire to always update compensation strategy is tempting in the intention of remaining relevant in the industry, and to enable the sales force with opportunity presents to allow sales performances to peak in gains.
The first objective of this paper is to explain why organizations are often in expectations to regularly update their sales compensation plans as the world (market) keeps on becoming a dynamically new world. Then, a presposal on how the process of regularly updating sales compensation plans can be achieved is done in the second objective.
Adapting to Market Changes
The economic factors change and technology changes and consumer tastes change, and markets change – even from the time a sales compensation plan has been designed in a fit that’s abandoned over time; perfectly aligned sales effort and sales results can lead to sales participation that results in less than optimum sales results.
Consider a company selling consumer electronics where the sales force has been rewarded for hardwaresales, where margins were high but the market was becoming saturated. Subscriptions to the software that the company was previously giving away were, however, growing at a steady clip. If half the sales team had been dubiously selling free subscriptions while the rest of them fought to increase hardware sales, something had gone awry. If the sales compensation plan is changed from incentivising hardwaresales to incentivising softwaresubscriptions, the sales force will be more in tune with the underlying market realities and the company’s sales will improve.
Staying Competitive
Like every sales leader knows by experience every day, in a competitive market it is inevitable that big and small competitors are improving their sales processes, the bells-and-whistles they provide for customers, and their sales structures in order to drive sales numbers and steal market shares; consequently, a compensation programme must be competitive and appealing to entice and, if need be, keep sales individuals on board.
Think about the plight of a pharmaceutical company whose smaller competitors have higher compensation packages for field salespeople – if the compensation plan remains fixed, the salespeople may see their positions as undervalued and their efforts demeaned (and thus more likely to quit) – unless the company establishes its sales compensation plan according to the share of its industry peer group, and updates the plan as needed.
Aligning with Evolving Sales Strategies
Sales processes are not static: the challenge of dealing with changing market conditions and the demands of evolving organisational strategy require that sales effort measurements (targets) and sales compensation be revised on a regular basis. A sales compensation programme that cannot adjust to changing strategy will misdirect the sales effort and lead to suboptimal performance.
In the simple example of a tech company moving from single-sale business models around upfront delivery of new products to recurring-revenue business models (such as product business models based on annual software subscription fees) in which the value in products comes through renewing the subscription, your incentive compensation plan will have to be explicitly changed. A base compensation plan based on incenting people toward upfront revenues and sales will not incent people toward building a recurring revenue base. If you change the base plan (and that is something you might want to do) to incentivise longer term relationships and revenue streams, then you will force those who sell to focus on the right things.
Practical Steps for Regular Updates
Implementing regular updates to sales compensation plans requires a structured approach:
1. Watch the Market: Track market activity, the economy and industry news that impacts sales on a fairly regular and frequent basis.
Compensation plans must be competitive relative to what your competitors are paying in order to be attractive, so conducting regular compensation benchmarking will help to maintain your plans at market-rate levels.
2. Sales Strategic Review: Adjust compensation plans to match your current and ultimately desired sales strategies to incent the right behaviour.
3. Sales Team Input: Talk to the sales team about what’s working well with the compensation plan in the field, and what should be improved.
4. Performance Measurement: Continuously use KPIs and performance measures to evaluate the effect of the motivation system and modify the design, if needed.
Real-World Example
A multinational communications business that had recently pivoted its strategic direction from old-time telecommunications services to digital and needed to redesign its global sales compensation plan. A year later, the new plan rewards salespeople for selling digital solutions and services, and the company reports that it boosted sales of digital offerings by 20 per cent in the first year. Through compensation-plan redesign, the company shifted sales incentives upwards, increased the digital sellers’ focus and their sales performance – a trifecta that shareholders would approve.
Sales compensation plan updates are as common as they are strategic. Market dynamics change. Competition between sales forces is intense. Strategies are evolving. To avoid being caught behind, sales management adapts compensation. They adjust pricing to support the need for growth over margin. They update compensation plans to drive focus to new opportunities. They update to bring sales commission structures more into alignment with sophisticated sales systems. They update to drive sales focus to faster-growth customers. They update to reward focused acquisition of a new lucrative customer category. There are many possible reasons why organisations need regular plans to review and update sales compensation plans. But, updates are not just for the sake of variance from the status quo. Regular updating of sales compensation plans can have an actual sales impact and move the needle on lift to motivate a select sales force to new levels of performance. For organisations willing to be aggressive in how they update their sales compensation plans, real strategic objectives can be achieved and the organisation can even gain a competitive advantage.
