Your Sales Strategy Says One Thing. Your Compensation Plan Pays For Another

Sellers are achieving above 110% of their quota targets. Leadership is happy. Six months out your pipeline may be soft, adoption of strategic products may be lagging and you may be missing next years growth target. 

Why did this happen? 

There is a chance that your incentive plan rewarded sellers to sell to **today at the cost of tomorrow.

Incentive plans typically reward sellers on lagging metrics such as revenue, bookings, ARR, premium, GM or quota attainment. There needs to be some type of measure that holds sellers accountable to their results.

However revenue is driven by behaviors that may take place months before a sale.

Building relationships with Executives. Talking about new products. Gaining share of wallet in strategic accounts. Discovering new business opportunities. Working with partners. Generating pipeline. Intervening with customers who are at risk for not renewing.

If your incentive plan does not reward sellers for these behaviors they may not focus on them.

You could have sellers that exceed their goals and not be focused on generating revenue for the future. 

1. Quota Attainment 

One of the most valuable metrics in Sales Compensation is quota attainment.

Its also one that can be misused. 

Lets say you have a SaaS seller with a $5M quota. At the end of Q3 they have closed 95% of their goal. They have enough small deals to finish the remaining 5% of quota.

The seller is doing well against their incentive plan.

Now you want that seller to work three strategic enterprise accounts, talk to those customers about new products and help build a larger opportunity. This could take 6 months to close. 

All of these opportunities will create value down the road.

However the seller must give up something to achieve these results.

Will they focus on keeping quota attainment high or will they work on future opportunities?

If the incentive plan does not reward sellers for future opportunities they will likely not spend time on them.

Quota attainment can cause sellers to miss out on future revenue.

They will sell to what they can achieve today instead of selling to opportunities that may generate more revenue tomorrow. 

Sellers are not dumb. They are selling to the opportunity that was presented to them.

2. Leading Indicators for Tomorrow 

Tomorrow’s revenue is driven by leading indicators. 

Perhaps your telecommunications company will see increased revenue from customers that purchase premium plans, discuss multiple products, interact with executives and begin to leverage your partners. Or maybe they are taking action with customers who may not renew.

Your insurance company may be selling more revenue by finding cross line opportunities, growing into strategic accounts and helping prevent non-renewals. Not just by increasing premium this quarter. 

Maybe your SaaS company needs to interact with Executives, grow new products and discover additional products within the customer base to drive expansion ARR.

These are all examples of leading indicators. 

You still want to hold your sellers accountable for revenue. You just want to know if they are taking steps to create future revenue.

Lets say you have a $500M revenue company with a 20% contribution margin. If your company is looking to grow 10% next year you would need to generate $50M in additional revenue.

Assume it takes an opportunity 6 months to reach maturity.

If your sellers are not working towards next years revenue you could have a 20% gap in your future pipeline.

This could mean that $100M of pipeline is at risk if you have 2x coverage. With a 25% opportunity to revenue ratio that would put $25M of revenue at risk.

With a 20% contribution margin that equates to $5M of contribution dollars.

This is why Sales Compensation can play a major role in future revenue.

How much revenue are you at risk of missing by incentivizing sellers to sell to their current quota? 

There are many things you can incentivize your sellers to do.

Make 10 calls a day. Hold 5 meetings. Generate 10 opportunities. 

However will that have any impact on future revenue? Probably not. 

Find behaviors that your seller can control that have an impact on future revenue.

Its not about paying your sellers to do more work.

Its about paying them to do work that will create more revenue. ** 

 3. Rewarding Today and Tomorrow 

As stated earlier you should continue to reward your sellers on outcomes that matter to your business. However there should be a balance between selling to today and selling to tomorrow.

Rewarding Current Results: Revenue, Margin, ARR, Premium, Retention etc. 

Rewarding Behaviors that Create Future Results: Interacting with Executives, Building Qualified Pipeline, Cross-Selling, Selling New Products, Utilizing Partners and Preventing Non-Renewals.

Depending on the stage your business is at you may need to focus more on certain activities. If you are rolling out a new product you may need to incentivize sellers to focus on that for a period of time.

No matter what activity you decide to focus on you want to ensure it can tie back to revenue.

Executives Interact with Customers -> Create more Qualified Opportunities -> More Revenue -> $ Value

If you are rewarding sellers to talk to Executives about your new product. Make sure that talking to Executives will actually generate more pipeline. Will the opportunities convert at a higher rate? Will the average deal size be bigger? 

Make sure you know the value of your activity before you start spending money on it.

 4. What To Ask Your Executive Team 

Here are some questions you should ask your executive team when deciding on what activities to reward your sellers for.

1. What are we trying to achieve?  Know what you want to sell more of or how you want to change the behavior of your sales force.

2. What can sellers do to achieve that result?  Know what they can control to get the desired outcome.

3. How long will it take to create the desired result?  Know how long it will take for the opportunity to close so you can judge if you should use a leading indicator.

4. What is my Baseline?  Know where your pipeline currently stands before making any changes.

5. How much will I gain by selling more of that product/activity?  Understand how much more you can sell by implementing these behaviors.

6. How much will I have to spend to reach that result? Determine how much you should spend to reach your desired result.

7. What am I currently rewarding sellers to do?  If you are rewarding sellers to hit 100% of quota adding a new activity at 10% will not change their behavior.

8. When will I review the results? Give yourself a timeframe to judge the activity. It could be 60 days, 90 or 180 days depending on your sales cycle.

9. What do I do if it doesn’t work?  Decide how long you will allow the activity to fail before removing it.

By asking these questions you will be able to determine if your incentive plan is rewarding sellers to sell to today or tomorrow.

There are great Sales Compensation software on the market that can help you analyze these results. They allow you to see what behaviors your sellers are doing and correlate them to revenue.

You want your incentive plan to help sellers create revenue for tomorrow.

When your sales organization hits 110% of quota ask yourself what are they doing to sell to the next 6 months?

Are they helping you reach your goal for next year? 

If not your incentive plan may be great at selling to today and terrible at creating revenue for the future.

You want your sellers to be selling to today and tomorrow.