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August 3, 2018
It’s Time to Start Thinking About 2019 Sales Compensation Design
By: John Marcsisin
It is approaching the end of September. Your sales organization has just missed plan for a third straight month. And based on current performance, your organization will narrowly miss its year-end revenue targets. You hope it’s only a narrow miss. You fear it could be worse.
“Beep”. It’s the sound of an Outlook calendar reminder. The CEO has scheduled a 30 minute meeting with you to review Q3 performance. You’ve been dreading this meeting since the Q3 results came in. Your boss will want answers. You do not know where to begin.
You are not alone.
Download The Sales Compensation Design & Quota-Setting Checklist to evaluate your Sales Compensation Design & Quota-Setting processes and identify if you are missing revenue and/or cost objectives.
The Missed Revenue Opportunity
The pressure to grow faster than the market is immense; it causes high levels of stress and many sleepless nights. These levels of growth are often difficult to achieve—and without the right people or processes, the challenge is far greater. Sometimes impossible.
According to Gartner, “Enterprises will miss the equivalent of at least 10 percent of total annual sales in “lost opportunity” revenue that could have been captured with improved processes for defining, assigning and managing territories, quotas, and incentives and compensation plans.”
In addition to stifling growth, poor compensation design often results in:
However, when done correctly, compensation design can be a powerful tool to fuel revenue and profit growth by:
To ensure your organization is maximizing revenue and profit growth, follow these design steps for FY2019.
Step 1: Is Your Sales Compensation & Quota-Setting a Problem?
The compensation plan needs to evolve with the corporate objectives and sales strategy; this will help drive the specific behaviors of the sales organization. Whether or not change is required depends on the effectiveness of the current plans.
If you consistently exceed your revenue objectives each quarter, few changes (if any) are required. It is an indication your compensation plans align to business objectives and adequately motivate the salesforce. However, if you are missing revenue and/or cost objectives or turnover is high, change is necessary.
Consider how you would answer the statements below:
Answering “no” to any of the above statements indicates a misalignment to market practice. Review your compensation plans and design processes to determine gap to market. Closer alignment to best practice will help drive incremental revenue growth and higher employee morale. Download the sales compensation design checklist tool to understand if change is needed.
Step 2: Are Your Plans Aligned to Best Practice?
You’ve identified that some change is needed. The next step is to dig deeper into the compensation plans and determine what is broken. Use a combination of qualitative (i.e. executive interviews, rep survey) and quantitative analysis to gather insights.
Assess the compensation plans across the following key decision points:
Compensation design should be grounded in best practice. Remember, no two industries or companies are the same; the compensation plan should reflect market, business and role differences (refer to Appendix A). This will enable your organization to attract the very best sales talent. In turn, this will position you and your company for greater success.
Effective compensation plans and processes can yield 10% more in incremental sales. This may be the difference between narrowly missing your revenue targets and getting that ever-elusive promotion.
Refer to the following articles for additional insight:
Download The Sales Compensation Design & Quota-Setting Checklist to evaluate your Sales Compensation Design & Quota-Setting processes and identify if you are missing revenue and/or cost objectives.
Additional Resources
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John has nearly six years of consulting experience focused on sales force effectiveness, incentive plan design, executive compensation and broad-based rewards aimed at helping clients achieve short and long-term business objectives.
John’s experience includes working with organizations in varying levels of change, including: start up, wholesale transformation, and merger & acquisition. He is tasked with developing sales force effectiveness strategies and processes that attract/focus/motivate/retain top talent. Specific areas of focus include: sales coverage model, performance benchmarking, sales compensation design, account segmentation and financial analysis/modeling.
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