As the leader of sales operations, I am sure you are working on:
- Updating CRM systems with new product information
- Revising or building a new sales process to enable sales reps
- Modifying sales reports and dashboards to enable sales managers to track new product sales
- Organizing and scheduling product training sessions
What about the sales compensation plan? Oops. This mistake often leads to underperforming product launches and underwhelming results. The success of the product launch lies in the performance of the sales reps. Therefore, creating proper performance conditions will ensure sales reps:
- Maintain alignment with corporate strategy
- Focus on new product sales
- Obtain market penetration projections
The key lies in changing the compensation plan to drive the sales force to sell the new product. So how do we incent this behavior? How do we drive change? How do we create a performance environment where sales reps have to take risks to make the number?
4 Compensation Considerations when Launching a New Product
Product Marketing and Internal Strategy have vital information. The research they conducted will help build a compensation plan that enables a successful product launch.
1. Determine Sales Expectations
To determine new product expectations, we need to work with our new best friend, the Product Manager, and perform analysis. Specifically, we answer two questions:
- What are the year 1 sales projections for the new product?
- What percent of total sales do we expect this product comprise?
To answer the first question, refer to the new product pro-forma income statement. This statement will provide you with your firm’s expectations.
If your organization has not modeled sales projections, the new product should not be a component of a quota or variable compensation. If the organization doesn’t know what the target is, how can the sales rep be accountable?
With regard to the second question, calculate a simple formula. Product A Sales projections / Total sales Projections for the year. This will determine the percentage of the product portfolio the new product should equal.
When designing the quota for 2013 sales reps, incorporate the new product into the compensation plan. If the product doesn’t make up a minimum of 15% of the overall quota, there won’t be enough incentive for the sales rep to focus on it. Remember, we want the sales rep to focus on the product(s) that makes up the largest fraction of their goal.
2. Identify the Average Sales Cycle
Amongst the research performed by strategy and marketing should be buyer-based research. Specifically, strategy and marketing should have mapped a buyer’s journey. You are probably using this data to identify gaps the new product will create in the sales process. When reviewing the data, try to answer two questions:
- How long does it take to sell the new product/service?
- How does that sales cycle compare with the current product portfolio?
When a new product takes significantly longer to sell, sales reps will need to be given some extra incentive. Remember, we are asking the sales force to take on some pain, a new product launch. One way to do this would be to offer 125% in sales credit toward quota for every new product sold. Another way would be to increase the commission rate on the new product.
3. Clarify if the product is Vital or Complementary
Many times new products are complementary versus vital. (Another term that is commonly used is core versus non-core business.)
When a product is vital to the future of the business, then a significant percent (greater than 15%) of variable compensation should be focused toward the new product.
With complementary products, the majority of sales come from account management versus net new customers. With the account management function focusing predominantly on cross- and up-sells the new product will be a performance enhancer. These products are often embraced by account management as something new to bring to a current customer.
4. Ascertain Competitive Environment
Launching a new product means acquiring new competitors. New competitors mean the competitive landscape for talent has changed. It also means your benchmark has moved.
- Who are the new competitors in the new or adjacent market?
As competitors change, you need to conduct a benchmark on your compensation plan. This benchmark will help determine how the market has shifted in terms of pay practices, total target compensation, territory management, etc.
Call to Action:
If you are launching a new product in 2013, review your sales compensation plan. This will ensure a successful product launch and the security of your bonus compensation. When reviewing the compensation plan, consider:
- Sales Expectations
- Average Sales Cycle
- Role of the Product
- New Competition
I’m offering 3 free compensation assessment and review sessions for Sales Operations leaders working on a new product launch for 2013. You can reach me here to discuss how you can improve your compensation plan.