If your goal is to reward employees based on sales performance, then you must understand what true performance really means for each role – for individual contributors, but also for sales managers. Sales managers have additional responsibilities, and this is why they need specialized incentive plans which promote specific behaviors. In this article, we’ll discuss ways you can design an incentive plan for sales managers.
Let us start by stating that sales managers are responsible for the collective performance of their teams. At the same time, they should also be rewarded for how efficiently they fulfill other managerial responsibilities – training employees, closing deals, or supervising the sales force. It can be difficult to determine which exact weight should be assigned to collective sales performance vs. managerial duties. However, a widely accepted guideline is a 70 / 30 ratio. Keep in mind that it’s not uncommon for sales managers to be paid less than top sales representatives.
Rewarding Team Collective Performance
When measuring individual sales performance, it’s often easier to start with absolute target numbers (ex: revenue or profit-based quotas). However, when measuring team-based performance, you have the opportunity to get more creative because many more sales transactions are involved. For example, when considering an entire territory, the total number of sales transactions involved is much higher than at the individual level. Therefore, variations (over time) are often less drastic. This makes it possible to use other performance targets such as growth percentages (ex: a target 3% quarter-over-quarter goal). Just make sure your sales commission software supports this type of calculation.
Rewarding Employee Training
Many sales managers spend considerable time training new employees. It takes considerable effort for a new sales representative to ramp up. It requires learning new products, establishing a new network, and making new connections. How quickly a new sales representative ramps up is a key performance metric to consider for sales managers. If you consider the amount of money invested (in terms of salary) to train new sales employee, it is usually considerable. When designing incentive plans, you probably should create one specific to new hires – for example, a plan which includes draws. And then, for this plan, you can define a manager set-aside commission. This allows effective managers to receive larger commissions based on how quickly they train new employees. Again here, make sure you use a software solution which handles this type of calculation.
Setting Manager Quotas
If you decide to use traditional quotas for sales managers, it may seem natural for the manager’s quota to be set to the sum of all its direct reports’ quotas. At the same time, this can be a mistake because you are dealing with a team – not individuals. There may be some open positions within the team, or some departures. Those could easily affect the team’s overall result – yet those events could be unrelated to the sales manager’s performance. You also don’t want to give sales managers an incentive to hire more employees when this would be detrimental to the organization overall. This means that you’ll need to spend more time fine-tuning sales manager quotas as compared to individual quotas. One possible choice is to use total team revenue divided by total salaries as a target metric.
Benchmarking Manager Payouts
Once you’ve defined your sales manager incentive plan, it’s important to test it. One option is to run calculations on past data. Another is to use a commission management solution which can perform simulations. Simulations allow you to draw sales transactions at random and replay them to create “what if” scenarios. Once you’ve determined what payouts may look like for sales managers, it’s time to compare them with those of sales representatives. Typically, only a few of your top representatives should be compensated more than their manager. If this is not the case, you may want to consider some adjustments. Ideally, you’d also create a list of tests which the sales manager incentive plan must pass.
Communicating With Sales Managers
Your compensation plan is worthless unless it is communicated correctly. Because sales manager incentive plans can be more complex than individual contributor ones, communication is even more important. Sales managers need to be able to understand their incentive plan and all its components. A clear pay mix will help them invest the correct amount of effort in each of the activities they are responsible for. Motivating your sales leaders and helping them realize higher level of attainment has a trickle down effect on their team members.
Sales managers require unique specialized incentive plans because their responsibilities are unique. This doesn’t mean there can’t be a strong connection between the performance of individual representatives and that of sales managers – whether it be through training efficiency, sharing quotas, or benchmarking payouts.