If this is done correctly, you will have motivated sales reps earning incentives you can afford. If done incorrectly, you run the risk of unmotivated sales reps, poor performance and high turnover.
Ask yourself three questions:
1. What role do my reps play?
2. What results can I measure?
3. What do my competitors do?
If your reps manage large portfolios that require customer retention, renewals and a long sales cycle, pay a higher salary and lower variable. If the opposite is true and you are hiring hunters who are growing the business, a small salary that “pays the bills” with a large upside is the way to go. Consider the graph below.
Both roles have an OTE of $150,000. The retention-based role pays 80% of the OTE in base salary because the expectation is for this rep to maintain a portfolio of valued accounts while perhaps doing some cross/up-selling into those customers. The growth-based role is all about new logo acquisitions and bringing in net new revenue to the organization. The plan reflects this by allocating 60% of the OTE towards the variable component.
What can you measure? Asking reps to produce net new top line growth sounds easy. However, if you are unable to distinguish between net new and growth from existing accounts, find another option.
Selling through a channel partner? If your partners cannot provide clear data and metrics around sales of your products, this will present a problem when determining a rep’s effectiveness. Make sure your plan can pay for measurable results.
Often, companies are reluctant to leverage their competition to help improve their own results. If you have strong competition in your industry, understand how they pay their people. If their sales organization outperforms the market and their turnover is low, chances are they’ve figured this out. If you hope to recruit reps away from the market leader, your plan will need to be at least as good, if not better. If you are the market leader, your variable comp plan should lead as well.
Creating an incentive compensation plan with the right base-variable mix creates an environment of performance excellence and results. Don’t wait until your A players start leaving to get yours right.