To drive the right behavior and hit your targets, your sales compensation must evolve at the same pace as your company.  This is especially important for smaller companies where revenue growth and new clients are vital for success. Download our Sales Compensation Benchmarking Assessment Scorecard to find out if your program is outdated. To go deeper, leverage the Sales Compensation phase of the How to Make Your Number in 2018 Workbook. Turn to page 395 of the Sales Strategy section to review emerging best practices for compensation planning.

 

Are you clinging to a legacy Sales Compensation model?  If so, the good news is you’re not alone. The bad news is, if you want to make quota, you need to overhaul the program. The worst thing to do is make minor tweaks and hope for substantial improvement.  You need to re-evaluate and change now.

 

Here are the most common outdated small company sales compensation plans we see:

 

The Big Base Salary:  When you first began building your team, sales were erratic and varied greatly.  In order to attract high quality candidates, you needed to provide an attractive pay package with some stability.  To accomplish this, you created a large base salary component with a kicker or bonus for hitting the sales target.

 

Problem:  Now you’ve got the reps, but don’t see the performance.  Most of your reps seem to lack the urgency and hustle of the competition.

 

Jack of All Trades:  Your reps wear multiple hats. You expect them to hunt new logos AND up-sell existing customers.  They are also your ad-hoc customer service team.  To compensate them for these efforts, you pay them both on trailing revenue and new logos.

 

Problem: You’ve got the stock broker model.  Your new reps hustle for the first couple of years.  But once they establish the territory with a solid revenue stream they get comfortable. They’ve stopped hunting for new clients.

 

Same Old Quota: Back in the day, just getting past the gatekeeper and into the corporate office required a lot of legwork.  You rewarded your staff handsomely for each new opportunity they closed. Your quotas have grown, but not at the pace of clients who are willing to engage with your firm. Some even proactively call you. 

 

Problem: Your “B” and “C” reps are earning the same pay despite putting in less effort.  They continue to hit slightly larger numbers from the previous year, but spend much less time prospecting and cold-calling.  You’d like to see an increase in sales with this huge decrease in prospecting time.

 

If you recognize one of these problems, it’s time to re-evaluate your Sales Compensation plan. As your business matures, so should the way you pay reps. Compare your sales team compensation to your competition and the market.  There are two ways to do this:

 

1) Hire a consulting firm like us.

2) Do it Yourself.

 

If you decide on #2, here’s how to objectively evaluate your compensation plan:

 

        1. Look at your role responsibilities and find the comparable positions at your  competitors
        2. Conduct research on the internet or send a trusted rep to the competition to determine what they are paying and how.
        3. Compare your programs. Use our Sales Compensation Assessment Scorecard to help with this evaluation. Then leverage our How to Make Your Number in 2018 Workbook.

 

Here are some key metrics to look at:

 

        • Your Base vs. Variable Pay Mix at 100% Quota Attainment vs the Competition.
        • Total payout for 100% Quota Attainment vs the Competition.
        • % of Your Reps Receiving Incentive Compensation
        • % of Your Reps At or Above 100% Quota
        • Payout Distribution (Are your top reps making 3X as much variable compensation as your “C” Players?)
        • Role differences:  Does your competition segment lower value sales activities (Account Management, Customer Service) from higher value (New Logo Acquisition?

 

Use these key metrics to re-adjust pay at a world class rate (Top 75% of competitors).  Given the legacy plans above, this may mean:

 

        • Setting new quotas in-line with both territory potential and growth targets
        • Creating separate quotas for Revenue Stream and New Logo Revenue
        • Creating a ramped compensation structure based on quota attainment.
        • Creating new roles within your sales force based on activity, and paying those roles differently

 

By re-calibrating your compensation program with an emphasis on variable pay you send a message to your sales force:  You’re willing to pay top dollar for “A” Player Performance.  It also signals to reps that live off an outdated system to change their ways.

 

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ABOUT THE AUTHOR

Drew Zarges

Helps small business owners overcome their biggest sales and marketing challenges to accelerate revenue growth.

Prior to joining SBI in 2011, Drew worked in the intermediary investment sales world. During that time, he worked his way up the ladder from client service representative to leading and coaching his former company’s sales team on the west coast. At SBI, Drew has served some of the company’s most prestigious accounts as a consultant. For these clients, he successfully executed everything from sales process and lead generation projects to highly technical account segmentation work. He now serves as the General Manager of SBI OnDemand, a unit dedicated to applying the firm’s battle tested concepts and projects to the small business community.

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