Scoping Out the Competition’s Sales Compensation Plan
Whether you’re looking to hire a new salesperson or create an updated sales compensation plan, it’s important to take a look at what the competition is paying. If you benchmark what the average salesperson in your industry earns, you’ll be armed to make a solid, competitive offer to a potential new hire. In addition, you’ll be able to create a sales compensation plan that motivates and inspires loyalty among your sales team.
As you research, keep a few things in mind. First, you must look within your industry. A salesperson outside of your industry may make sales incentive bonuses or other sales compensation that is not fitted to your particular product or service. Try to be as specific as possible, focusing on your competitors.
You should also keep in mind that even among competitors in the same industry, processes and budgets differ. Your product may be easier or more difficult to sell, more costly to manufacture, or you are selling to a more specialized target market, making it harder or easier for your sales team to sell. You may be a price leader with lower margins than your competition, creating a different budgetary scenario.
One more factor to consider is your place in the marketplace. Are you a market leader? Can you demand more from your salespeople due to higher quality or more built-in rewards? Do you require travel or other sacrifices from the sales team? Also take a look at your lead generation process; are you spending more on this process than your competition making it easier to sell?
When you evaluate your sales compensation plan in comparison with the competition, it’s important to take a look at factors like these so you don’t give the comparison too much weight. Yes, you need to be competitive, but you also need to have a sales compensation plan that is tailored to your company’s needs and goals.
For more information on creating a sales compensation plan that is competitive in your market get my free sales compensation ebook, or call me today at (612) 267-3320.
Designing a Sales Compensation Plan That Resets Itself
I see it all the time: sales managers trying to motivate a team with a sales compensation plan that is years old and doesn’t reset itself. This is one of the biggest issues why I see in sales compensation plans fail.
If you’re either considering redesigning your sales compensation plan, or already in the process, I encourage you to take a lesson from the mistakes of others. Design your plan from the beginning with a process to update it every year and communicate it to your staff. This will save you the stress of dealing with an outdated plan, improve motivation and a result in more bottom line.
Let’s take a look at this example. Say your sales compensation plan was set up for the average salesperson five years ago. At that time, the product was just being introduced. If you use the same sales compensation plan today, the sales rep with an established account will be paid the same high “new business” commission as a rep is really bringing in new business.
Unfortunately, owners often fear changing this kind of outdated and costly plan for fear of losing salespeople. But in the long run, top performers will be rewarded in a way that is commensurate with their value to the company, making them more loyal.
If your company’s margins, market position, and goals have changed so should your sales compensation plan. A sales compensation plan that overpays account managers and doesn’t value hunters is a bad idea that leads to reduced morale and profits. Instead, avoid institutionalized sales compensation plans and base your plan on your budget with sales incentives that align with company goals. Resetting your sales compensation plan based on accounts rotating into regular clients is a good way to ensure fair pay and continued growth.
Interested in learning more about setting up a self-reseting compensation plan? Download my e-book on sales compensation or e-mail me.
Monitoring Sales Results with Your Sales Compensation Plan
I know that being a sales manager is a demanding position. You’re constantly pulled in different directions. You’ve got to keep your sales team happy and motivated, but you’ve got to discipline and train them as well. You’ve got to stick to your budget and keep your bosses happy, but you’ve got to expand business at the same time. And you’ve got to do all this while maintaining about a hundred other balls in the air. So who has time to monitor the daily activity of a sales team?
Well, I’m here to tell you that need to find the time. One way to make sure that you are monitoring sales activity and results is by building a system into your sales compensation plan. If you must consistently monitor the sales numbers to keep on budget and make regular reports to owners, why not use this same information to help you monitor your sales team’s activities?
This is a vital component of maintaining a healthy sales team and continuing to motivate high achievers, while discouraging below average performance. If, for example, you have a salesperson who has not met their sales goals for the last couple months, take advantage of this information to evaluate the sales rep’s behavior and habits. Are they performing poorly because of some faulty practice, lack of training, or simple laziness? If you invest a little time in addressing their weak spots and their numbers continue to falter, it may be time to cut them loose.
Remember that even with the best sales compensation plan, a person who is not motivated to sell will not sell. The best sales compensation plans I’ve seen will still not cure a bad attitude. It won’t improve weak skills or lack of experience either. It’s up to you to monitor your sales team and ensure that they have what it takes to make their goals.
Interested in learning more about building this kind of system into your sales compensation plan? Read my complimentary sales compensation ebook or call me at (612) 267-3320.
P.S. For the next two days when you buy the book I co-authored, Business Experts Guide to Small Business, you’ll receive thousands of dollars worth of bonuses.
Incorporating Timely Sales Rewards into Your Sales Compensation Plan
Does your sales compensation plan support your training efforts? Did you know that there are ways to make training a new or established salesperson easier?
If you’ve ever trained a dog, you know that it takes consistency and perseverance. You’ve got to be observant and react in a timely manner to both progress or missteps. You do this by rewarding good behavior right away with a treat and discouraging bad behavior immediately. For example, if you’re teaching your dog to sit, you give him a treat each time he sits on command. If you don’t reward the dog immediately after he sits, or ever, he won’t correlate the reward with the good behavior.
Failing to reinforce good behavior with immediate rewards is a common mistake I see in sales plans. If a salesperson performs well in one month but doesn’t receive their reward until the end of the quarter or worse, the end of the year, they don’t correlate the reward with the good performance. They lose the connection between the good results for the company and the improved sales compensation.
You can prevent this by building timely rewards into your sales compensation plan. Keep in mind that your sales reps have monthly bills to pay and if they work above and beyond one month to meet those bills, they need to see the sales compensation to match immediately. If they know they will see their commissions increase immediately, they will be more motivated to hit their monthly goals. But if they know they have to wait for the end of the quarter or the end of the year, they’ll learn to live without the commission, making it less of a motivator to good performance.
Interested in learning more? Get my e-book on sales compensation.
Also, as a contributing author of Business Expert Guide to Small Business Success I’m pleased to offer you the chance to buy this great book between November 16th – 18th and get thousands of dollars in free resources. Learn more about this special promotion.
The Basics of Sales Commission Start Points
Through the years I’ve spent helping companies create effective, balanced sales compensation plans, I’ve heard a lot of confusion about the concept of the sales commission start point. And I can understand why it might be confusing at first. Most sales managers are used to a very simple sales compensation structure that is founded on a base salary and sales commissions. A few of you may already have sales incentive start points built into your sales compensation plans, but for the most part, this simple two-part sales compensation plan is the most common program. Coming from this perspective, the sales commission start point can seem like a foreign concept.
But not having sales commission start points is an all too common mistake. So let’s take a quick look at what they are and how you can implement them to help create a more effective sales compensation program overall.
The trick to understanding the sales commission start point is to view the base salary as a guaranteed commission. Let me give you an example. Let’s say you’re paying a salesperson on your team a base salary of $5K per month. Let’s also say your budgeted sales compensation goal is 10%. So if the salesperson were on straight commission, they would have to sell $50K to earn their $5K base, right?
So without a sales commission “start point”, for you to get back to your 10% budget you need to pay a reduced rate like 5% and hope they sell $100K. However if they do not hit $100K you are over your 10% budget.
A sales commission start point will move your sales team toward a straight commission mentality. It also locks in your percentage of selling costs. As a result, under-performers make no commission, and your top performers are motivated to meet and exceed their monthly goals. In essence, a sales commission start point is like a stick and a carrot for your sales team.
Interested in learning more? Download my e-book on sales compensation or email me.
Sales Incentive Plans for a Motivated Sales Team
What’s your primary sales goal? Is your sales compensation plan helping you reach that goal? If your goal is accelerated growth, you need a sales compensation program that will support that end. Compensating for accelerated growth creates a motivated sales team which is both valuable and profitable for you and your company. But how can you tailor your sales compensation plan to help create the kind of motivated, productive sales team you need to expand business?
I strongly encourage sales managers to offer accelerated sales compensation for growth. In my experience, building this sales incentive into your sales compensation program is an effective means of motivating the kind of behavior that will result in expansion. Accelerated sales compensation for growth is not only a strong motivator for the sales team, but it is also a fair approach to sales compensation. Those salespeople who are performing at the top, who are brining in the most new business and therefore helping you the most to reach your primary goal, are rewarded accordingly. This kind of sales incentive is one way to bring your sales compensation plan in line with your company’s goals and strategies, supporting your sales team along the way.
For example, I may only pay 50% to 80% of my total budget for sales that are equal to or below the level of last year’s sales. This cut in commission acts as a motivator to sales staff. But in addition to this adjustment to sales compensation, I also will pay significantly more for sales growth over last year’s numbers. This kind of sales incentive plan communicates to the sales team that account managers do not get the same percentage as the top performers who are supporting company goals of accelerated growth and building the value of the business as a whole.
Interested in learning more? Download my e-book on sales compensation or e-mail me.
Using Guarantees in Your Sales Compensation Plan
Attracting top sales performers is essential for a strong sales culture. It’s important that you have a sales compensation plan that reflects the priority that these top sales performers are to your organization’s growth. If you want to attract qualified candidates, you need to take a look at guaranteed sales compensation.
Instead of offering a high base salary for salespeople, which is hard to change later, why not offer some form of guaranteed sales compensation for new candidates? This kind of short-term sales incentive will help you bring top performers on board by giving them incentive to join the team. New hires need time to build their client bases and earn their keep by adding value to the sales team. During this transitional period, new salespeople often struggle with sacrificing a strong income for a new opportunity with your organization. By offering a guaranteed sales compensation, you help new hires over this tough transitional period.
If you decide to try short-term guaranteed sales compensation, it should be competitive to attract the level of sales performer you need. Do your homework to discover what other firms are paying their new salespeople, then use this information to create a sales compensation program for new hires that will enable them to look at your offer as a competitive one.
Most short-term guaranteed sales compensation plans are offered for anywhere from three to twelve months. So build this time frame into your sales compensation plan structure and make sure that your guarantee is motivating enough to attract the best performers. You may pay a little more up front, but attracting strong salespeople will pay off in the end.
For more information on sales compensation read my eBook, Compensation Compass.
When Is It Time for a New Sales Compensation Plan?
Most sales managers and sales leaders realize the importance of an effective sales compensation process. However, often you don’t know when or how to evaluate your existing plan to determine if it’s time for an upgrade. A balanced, performance-optimized sales compensation program can make an enormous difference to your bottom line, energizing your sales team and raising your gross margin.
If you’ve been spending too much time fiddling with base salaries, trying to come up with a sales compensation formula that works for various performers, or if you’ve been adjusting sales commission percentages over and over again to meet new circumstances, it’s probably time for an overhaul of the sales compensation program.
If you’re not sure where to start, you’re not alone. Sales managers and sales leaders often have trouble when it comes to creating a sales compensation plan that works under multiple circumstances and with various levels of performance to accomplish the number one goal: maximize sales and grow the business.
So if you’re sales staff are grumbling, your owners aren’t happy, your budgets are stretched and your sales results continue falling behind target, it’s time to invest learning more about how to create a balanced sales compensation plan that is optimized for your sales team’s performance. The good news is that if you’re aware that your sales compensation plan is the problem, you’re ahead of the game.
Act quickly. A problem that stems from a faulty sales compensation plan will only get worse if not stopped.
Sales Growth Question: How effective is your sales comp plan at driving the business results you want?
Sales Growth Lesson: What needs to change in order to deliver consistent business results?
Interested in learning more – Get Compensation Compass.
Also, we had a great session on Compensation at EcSELL Institute’s Leadership Workshop in Memphis. Check them out.
Is Your Sales Compensation Plan Fair?
I often talk to sales managers and sales leaders about sales compensation plans, especially as they’re doing strategic sales planning. I get a variety of responses. Some say that I’m too nice to salespeople. They say I offer too many sales incentives or too much forgiveness or too much latitude in duties.
Other sales managers and sales leaders say I’m too tough with salespeople and that I require too much to earn sales commissions. They might say I’m too tough on sales account managers or customer service reps. Or, they say I don’t allow average salespeople enough chances to prove themselves.
But, whether they say I’m too nice or too tough, they’re missing the point. The important thing is being fair. My priority—and yours—is to grow the business and raise gross sales margin. Not just this year, but consistently, year after year regardless of who is on the sales team.
A salesperson who helps you hit your numbers by expanding business and raising gross margin deserves to be paid top dollar for their contributions. If your sales compensation plan doesn’t reflect this, you need to re-evaluate. Of course, a salesperson who isn’t pulling their weight should not be compensated at the same level as a top performer. Plus, order takers or account managers should also receive a reduced sales compensation percentage.
Be fair when setting up your sales compensation plan, even if it means paying more to top performers and being tougher on underperformers. In the end, fair wins business.
Sales Growth Question: Is your sales compensation plan “fair,” i.e. is it aligned with your strategic growth objectives?
Sales Growth Lesson: To be fair to all stake-holders, the sales compensation plan must reward those who most contribute to the companies growth efforts.
Interested in learning more? Read my e-book on sales compensation, Compensation Compass.
 |
 |
 |
