Picture this: We are a few weeks into the new year, the results from Q4 are in, and there’s been a big drop in sales.
There could be many reasons for this drop, such as a lack of marketing and sales alignment, poor hiring and training procedures, or simply a lack of motivation.
Regardless of the cause, when the results roll in, sirens go off, panic ensues, and your brain goes to immediate damage control mode, thinking, “How are we going to fix this, and how can we do it fast?” Can we re-engineer sales and marketing strategy or revisit hiring and training procedures? “No, that would take too long.” What about automating the sales process with business software systems? “That is too costly right now.” Then it hits you, “Ah yes – we’ll change the incentive compensation plan. We’ll roll it out swiftly and it will help us turn a page going into 2019.”
WAAAITTTTT!!! That might seem like an easy win, there are some big red flags with that solution. Read on to find 3 reasons why changing the incentive compensation plan is the worst response to a drop in sales – and what you should do instead.
Changing Your Comp Plan Is the Wrong Solution to Your Problem
Usually, compensation issues are indicative of a greater problem. There is a reason why sales compensation is the last step of the engagement section of the sales strategy Revenue Growth Methodology .
Before we think about comp, we need to think about org design, talent, territories, quota, and more. Skipping all prerequisite steps and jumping directly to redesigning comp is like putting out a fire with lighter fluid. When you address the drop in sales through a change to the comp plan, you may be covering up the real root cause of the problem. Take our Root Cause Analysis Questionnaire for some ideas on what you should be considering before you rearrange the deck chairs on the Titanic.
Changing Your Comp Plan on the Fly Will Stop Productivity in Its Tracks
Incentive compensation plans don’t have to be complex. In fact, they shouldn’t be. Your comp plan should be easy to understand, manage, and align with business top priorities. If you introduce a brand new comp plan in Q1, with little communication or lead time, you can bet that it will be a big distraction and productivity killer for reps as well as the leadership team. When designing a comp plan, be sure to avoid the common pitfalls and give the assessment the proper attention it deserves.
Don’t Pull the Plug on Your Brightest Lights
This sounds counter-intuitive, but if your “A” players were not having a problem hitting their number under the old plan, you should rethink making changes. Making changes sends the wrong message and might even enforce the wrong behaviors. Read our tips for using your comp plan to retain your “A” players, and sending your “C” players to go work for your competitors. Getting into the habit of changing the comp plan too frequently might cause your sales force to lose focus if they do not know what they are going to be measured on and evaluated against.
What Should I Do Instead?
You might be thinking, “Well if I am not going to change the comp plan, what should I do instead to respond to the drop in sales?”
First, check out our root cause analysis questionnaire, which will help you think through some of the other factors, such as whether you are targeting the right buyers, making sure you have optimal org design, and thinking about your hiring profiles. A change in the comp plan might not be the right move at this time, but you may decide to revisit this decision as 2019 winds down. In this case, it should be a proactive process and should be properly vetted through several different parts of the organization. You should also make sure you have clear measures of success.
In conclusion, as much as it might seem like a quick fix, this is not the best time to introduce a new comp plan. When the time comes, check out our tips on compensation planning to ensure you are set up for success, and reach out to learn about how our compensation experts can help.
Download the Root Cause Analysis Questionnaire to understand the cause of a recent drop in sales, evaluate your organization’s alignment with the revenue growth methodology, and identify key areas for improvement.
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