Sales compensation is one of the most critical components of a strategic sales plan, but it is also one of the most overlooked. I find it amazing how many companies have single target goals (i.e. revenue only), or that there are even discussions within the sales world of abandoning commissions altogether.
Let’s take a step back and discuss the primary purposes of compensation:
- To attract talent
- To reward excellence
- To drive specific behaviors
You can certainly make this list more granular, but in the end, any additional points will end up in one of the primary purposes listed above. If we look at the list, the first two seem obvious – you won’t have very many employees if you aren’t paying them. But the third one we will discuss further below.
For example, let’s look at a sheet metal cutter. You could simply pay an hourly rate and be done with it – you’ll get decent performance from most individuals qualified for the job. What if you were to add some incentives though? What are some of the things under this individual’s direct control that could positively impact the business, over and above just the job itself? If the piece of sheet metal being cut out must conform with certain specifications or it won’t work – how about reject rate? Could incentivizing on reject rate make an impact? Let’s say there is no monetary value in the scraps left behind – wouldn’t that be something worth incentivizing?
Now let’s look at the tip of the spear – sales. There is no department in any organization with more control over the direction any company takes than sales. Sure, engineering can develop some revolutionary, bleeding-edge technology – but unless it’s going to sell itself, sales are still critical to success or failure. Salespeople being a breed of their own, tend to focus their efforts on one thing – whatever will take them to the bank.
Let’s see how we can use the ‘take me to the bank’ mentality to a company’s advantage using the example of the bleeding-edge technology that engineering developed. If the new technology is going into a new market segment, therefore having a more challenging sales process as the company may not carry the same recognition as in traditional segments. Even if it’s a bigger ticket item, salespeople are going to weigh selling more lower cost items with an easy sales process versus the new product and all the challenges that come with it, unless proper incentives are provided.
Companies with a straight commission structure (not talking about targets, but paying on a single reference – i.e. revenues) may be losing valuable time in seizing market share as the team is not incentivized to support a specific action – selling the new tech. As we all know, there is a direct correlation between time to market and profitability.
