There are a number of things to consider when looking at variable metrics: Revenue growth, contribution margin, new logo acquisition, renewals and retention, customer satisfaction, market share, wallet share, etc. It’s important to first determine what your objectives are as a company before making this decision. For instance, if your goals are to generate higher profits from current customers, a plan that rewards retention and contribution margin might be the way to go.
It’s all about keeping it simple. Making sure this part of the plan focuses on 2-3 metrics is important if you want your reps to be able to understand and focus on the activities that drive desired results.
Other factors to consider when determining variable metrics:
- Bonus v. Commissions – Does it make sense to pay a bonus based on performance attainment or a commission percentage of every dollar sold?
- Product Maturity – Do you have new products to sell or are you prying existing market share from competitors?
- Sales Cycle Length – How long does it take to sell a deal? What impact does this have on the rep’s ability to earn incentives commensurate with company performance?
- Activity v. Productivity – Are you paying for activities (leads generated, prospect meetings, pipeline growth) that will ultimately lead to results or are you focused purely on the results (new logos, revenues, profits)?
As I mentioned at the beginning of this blog, compensation is the biggest expense in the sales budget. Are you ready to go all-in on your comp plan?