Why Sales Compensation Should Be Discussed Before Revenue Targets Are Set

Annual planning typically looks similar across organisations. Executive leadership proposes the revenue target, Finance approves budgets, Sales Leadership sets quotas, and finally, Sales Compensation starts designing the incentive plan. By the time compensation is involved, it’s an operational exercise and instead of participating in the strategy conversation, they’re tasked with executing on someone else’s strategy. While sales compensation is a leading driver of seller behaviour, waiting to include compensation until after revenue goals are finalized creates ineffective quotas, unrealistic expectations, conflicting incentives, and undesired seller behaviours. Forward-thinking organisations bring Sales Compensation into the strategic planning process early and set revenue targets that are more achievable, better aligned to business priorities, and more likely to drive sustainable revenue growth.

1. Revenue Targets Without Incentive Strategy Are Only Aspirations

Every executive team sits down to plan for the new year knowing they need to answer one question:

“How much revenue do we want to generate next year?”

That is an excellent starting point. But as they begin defining revenue strategy, one question is rarely considered:

“What seller behaviours will actually make that revenue number possible?”

Leadership can strategically plan until they are blue in the face, but until someone convinces the sales organisation to change their behaviour, those numbers will remain aspirations.

Sales compensation “drives” seller behaviour. Everything from whether sellers choose to pursue new business vs. existing accounts, maximise margins, focus on strategic products, expand territory reach, or prioritise recurring revenue is influenced by the compensation plan.

Regardless of how grand visions are articulated at the start of planning, if compensation is not involved from the start, the plan will only incentivise yesterday’s priorities.

Take one common example – a software company decides to place a greater strategic emphasis on recurring subscription revenue and wants to increase that number by 30% in the coming year. Leadership approves that objective and cascades it throughout the organisation. Then, many months later, the Sales Compensation team is finally consulted about how to update commission plans to support that strategy.

However, because the existing commission plan still pays on total contract value, not recurring revenue, sellers do not change their behaviour. Larger, one-time deals continue to be pursued because that’s what sells drive commission earnings.

The organisation believes it has a revenue strategy.

The sellers have an entirely different set of incentives.

Do you want to guess what happens? 

Leadership works all year long pushing and selling this new strategic behaviour while the commission plan vigors sellers to prioritise legacy priorities.

Instead of revenue plans that turn into detailed execution documents, they remain expectations because the behaviours were never financially incentivised from day one.

2. Sales Compensation Has Strategic Insights Before Targets Are Finalised

Sales Compensation teams have important insights to provide that go beyond commission percentages.

Teams understand how sellers will react to quotas, accelerators, performance metrics, payout schedules, and more. Sales compensation leaders have learned from previous plans what drove the wrong seller behaviours and where strategic initiatives failed because incentives were wrong.

By including Sales Compensation early in the process, leaders can identify concerns before revenue targets are confirmed. Questions like: 

a. Do the incentives support the new product/service mix?

b.Are quotas realistic given territory opportunity? 

c.Will margin goals be undercut by volume-based incentives?

d.Do the incentives support customer success / retention? 

e.Are there any unintended consequences that will encourage discounting ?

These questions are not checking for operational alignment. These are strategic business discussions. Organizations set revenue targets without thinking through how compensation will support those numbers.

Imagine your organisation is planning international expansion but also plans to launch a new premium product. Finance comes back to the group having developed revenue projections based on market expansion.

However, Sales Compensation pulls historical sales data and notices that sellers haven’t been motivated to sell premium products because the incentives were built around transaction volume, not profitability.

By identifying this issue “before” revenue targets are approved, leadership can revisit both the incentive strategy and revenue assumptions to create a plan rooted in how sellers will actually behave, not how leadership ** hopes** they will behave.

The difference between planning for execution vs. planning around assumptions.

3. Revenue Planning Is (and Should Be) a Cross-Functional Process

Revenue planning is not a sequential process. High performing revenue teams collaborate to build strategy.

a.Finance focuses on financial objectives 

b.Sales Leadership provides market insight 

c.Product defines strategic priorities 

d.Revenue Operations validates operational readiness 

e.Human Resources ensures organisational alignment 

f.Sales Compensation can answer: 

“Will our incentive strategy motivate sellers to do what is required to achieve these goals? “ 

When sales compensation is involved from the start, they earn a seat at the strategy table and shift thinking around compensation plans. Rather than being a downstream function that executes on strategy, sales compensation becomes a strategic advisor that helps shape revenue plans.

Picture two organisations beginning a new fiscal year. In one, revenue targets are agreed before including Sales Compensation. By the time compensation meets with sales to define quotas and plan logistics, conflicting conversations have already taken place around incentive measures and revenue strategy. Managers must then spend time clarifying exceptions to the plan while sellers optimise for behaviours that ARE compensated.

In the second example, Sales Compensation is included in every planning discussion. When revenue strategy is being outlined, leadership considers how that will impact seller behaviour. Instead of being sold on a plan that delivers mismatched priorities, Sales Leaders and Sellers help design the plan together.

Both companies will launch great incentive plans. 

Only one will launch a revenue plan that sellers are wired to execute.

And that doesn’t come from better commission rates.

“It comes from better planning.” 

Sales compensation should not be viewed as the final step in the planning process. Incentive plans are strategic initiatives that define how revenue will be won, not administrative exercises that take place after the revenue is won. Including sales compensation before revenue targets are established allows organisations to align seller motivations to business objectives from day one, identify execution risks long before planning wraps, and build realistic plans that stretch the business without breaking revenue teams.

Revenue targets set the destination for the business. Sales compensation plans determine if the sales organisation has the motivation and direction to get there.