Making an Impact With

Sales Compensation

Prepared by John C. Kolencik Copyright 2012© by Matrix Impact

Sales Compensation is a misunderstood, yet ALWAYS scrutinized facet of sales. Every sales organization has a “commission plan” but is it truly designed to make an impact with both the company and the sales representative? Will it motivate sales success day-to-day, month-to-month, quarter-to-quarter and year-to-year?

The days of "go out and sell a lot" are done and gone. Yet most sales compensation programs are STILL counterintuitive. They encourage sales people into 3 of the worst possible activities:

Sell easy (sell the easiest item to sell, to the people most likely to buy) rather than what’s in the best interests of both customer and employer.

Close business at the expense of relationship building. Sacrifice ongoing activity that will lead to an exponential amount of

business at the expense of an individual sale or one successful sales month.

It’s common sense that salespeople will do what the compensation program rewards (easiest sales) and not what is in the strategic plan. Sales compensation encourages and discourages behaviors and not always correctly. If you want to accomplish company strategy, ask yourself if your compensation program directly supports your corporate strategy by encouraging the right kind of behavior.

What Should a Sales Compensation Plan Accomplish? The 3 goals of an effective sales compensation:

Effectively guide and motivate the sales representative to achieve the highest possible sales revenue while shining a light on how to use their time most effectively.

Motivate sales to perform the activities that will lead to success in sales. A revenue-activity linked strategy will help generate the correct activity levels while reinforcing production.

Achieve daily execution and practice of core company philosophy, strategy and tactics.

Successful salespeople want to make money, DUH. What they want almost as much is a simple commission program allowing them to earn as much money as they can, based on the successful work they put into the endeavor.

Matrix Impact’s 11 Rules for Making an Impact With Sales Compensation

Rule Number 1: Compensation = Behavior Compensation programs must mirror your company philosophy. Sales reps will behave/perform in relation to their compensation plan. Use any example you want here - high/low performing, sand bagging or bringing in business early, price gouging or price slashing you name it and they will do it based on how they get paid.

68% of employed sales people surveyed said a compensation program that rewarded for both activity and production would cause them to set, and then work toward, job-related goals.

Source: American Express Incentive Services

2) Best Practices Lead To Best Incomes The salespeople who are the most skilled, hardest working, best prepared and most organized will make the most money. This is why it is CRITICAL that all reps are taught and drilled on best practices monthly. Guarantee everybody an equal chance to succeed. This also corresponds to activity; we’ll get to that later in this discussion. 3) Sales Manager Musts The Best Comp Plan Will Be Laid Waste by Sales Managers That Don’t:

Train and Coach Their Reps Ride with Their Reps Track Activity, Track Sales Volume and Profitability

4) Macro Components that MUST Be Present

Reward – Challenge - Punishment These 3 basic components of motivation act as a balance for each other. Without equal measure of all 3 components your program will fail. 5) Volume and Profitability Commission should be based on and balanced by volume and profitability in equal measure. If not you will either get bloated numbers that will lose you money and eventually close your doors or too few deals at great margins that will eventually close your doors. 6) NEVER CAP YOUR SALES REPS EARNING POTENTIAL. LET ME WRITE THAT AGAIN; NEVER CAP YOUR SALES REPS EARNING POTENTIAL If the company CAPS the compensation plan on some arbitrary number, prepare for people to take the year off once they hit that number. Their next move is to quit and find a company that won’t cap their earnings. The only things that should ever C.A.P. sales’ ability to earn is:

Competency: How proficient are they in the practice of sales? Activity: What level of activity do they perform at consistently? Production: What level of production do they perform at

consistently?

It is management’s job to give sales all the training and support they need and then sales provides the rest. After that it is law of the jungle time. 7) Revenue Neutral Don’t lose money at the expense of keeping salespeople happy. When designed correctly you can make this program revenue neutral. 8) Simple Calculation Commission should be EASY to calculate. Reps should be able to figure out commission with basic math so fast that if they only had 10 minutes BEFORE a closing meeting to do it, they would know how much they will make on a deal. Call it motivation….. 9) Activity as Accelerator The best programs reward activity by using it as a commission accelerator. Set challenging smart activity goals, reward hitting activity with % bump, measure, monitor and watch sales volume totals go through the roof. 10) You Must Have a Bowl Helmet Most College football teams will change their helmet when they make it to a bowl game. The BEST teams use it as a showcase. They put it out to the players as a GOAL to achieve.

The head coach at my alma mater Kent State put this helmet on display where all the players could see it. He promised that if they went to a bowl game they ALL would wear it. This year they made it to the 1st bowl game appearance in 40 years. A manager needs to KNOW how much money your sales reps want to make. Then show them in terms of achieving their goal as well as how much they could potentially hit as well. Remember the old axiom “seeing is believing.”

11) Guidelines Regarding Commission Splits Either stay in contact with your customer base or cede your right to

them. No contact for 6 months and an account is a jump ball. Contact is defined as evidential (think CRM tracking reports)

person to person discussions that can include phone conversations at minimum up to in-person meetings. Some examples are business status calls, appointment scheduling calls, discoveries, presentations, lunch etc. Touches like letters or email blasts do not count.

If there is overlap and both reps have been in contact (evidential proof) and both are permitted by the company to sell across lines and both want to work the account then split the commission, think 50/50.

Overlap is defined as when 2 sales reps share a geographic, market or customer specific territory, but may sell different lines of products. Companies SHOULD NOT have overlapping where salespeople can sell across product, territory, market or customer lines, that is of course unless you want ongoing civil war. I acknowledge it does happen thus have created a rule set.

If there is overlap and both reps have been in contact (evidential proof), the rep that uncovered and is working the lead should receive the majority of the commission, think 75/25 to the rep working the lead

If there is overlap and a rep is called in because of a product specialty, major accounts etc. then split commission think 75/25 to the rep who discovered the lead/whose territory it is in.

If there is a discrepancy it is a situation by situation review. Manager makes decision based on evidential proof of contact, discovery of opportunity and ability/willingness to work the lead

There are some variables that could occur, exact percentages for instance. The one thing that should never change regardless of industry, product or situation is regarding contact. If a rep doesn’t stay in monthly contact with their customer base they cede any claim to them as customer base (potential or otherwise).

That’s it folks, all 11 in a nutshell. I willingly concede there is more to a compensation plan including benefits, days off, title etc. But really when it comes right down to it these 11 rules are the HEART of the matter. Being logical, defensible, fair and most of all, in alignment with what sales people look for from a company. They are what’s really important in a effective compensation plan. If you take the time and apply these rules the next time you design/revisit compensation, I promise you will have a motivated sales team that trusts its employer. You will have designed a Sales Compensation Plan That Makes an Impact!