Designing effective sales incentive plans is no easy task. It requires finding the right balance in terms of difficulty vs. rewards. It also requires sizing each territory’s opportunity correctly to set meaningful quotas. Sales incentive plans are challenging, and this is why many organizations leverage commission management solutions. Without automation, it’s hard to legally protect your plan. It’s hard to make your plan resilient to change (such as a competitor going out of business). However, here are 5 signs that you’ve created an effective sales incentive program.
#1 – Transparency
Sales representatives want to understand their opportunity for earning larger commissions. They need to be able to translate this opportunity into specific sales behaviors they’ll implement. For example, could promoting a specific product line result in higher commissions than other products? Will granting significant discounts affect payouts? This requires clear communication about the rules of engagements. In addition, sales representatives want understand not just their own rules of engagement, but those of other representatives. They want to know who is on what plan and must be convinced that there is a fair playing field (regardless of responsibility or territory). Finally, they want to understand the logic used to set quotas. This requires good communication to explain the methodology used to set quotas. If your sales representatives rate your incentive program as transparent across all these aspects, you’ve nailed #1.
#2 – Reasonable Quotas
Nothing infuriates the sales force more than incorrect quotas. Setting unreasonable quotas makes sales representatives feel like management doesn’t understand what they can sell or real-world challenges from the trenches. Worse, unreasonable quotas cause churn and employee disengagement. This is especially true if the incentive plan aggressively punishes sales representatives who are under quota because… accidents do happen! While aggressive commission schedules could save your organization significant money, failing to set quotas correctly will not just punish under-performing representatives, it will also punish the entire sales force because of attrition. However, if 70% of more of your representatives regularly hit their quota, you got #2 right and found the right balance between “too easy” and “too hard”.
#3 – Streamlined Delivery
Sales representatives want to make sure they are correctly credited for each sales transaction. Failing to provide them with a convenient way to verify crediting is likely to result in “shadow accounting”. Your representatives will start spending significant time manually verifying they were credited for each deal. In addition, actual delivery of commissions needs to be efficient. Distributing Excel spreadsheets via email (or worse, printing them) doesn’t cut it any more. Sales representatives aren’t supposed to be Excel pros. They don’t want to deal with multiple tabs, complex calculation formulas, or spreadsheets they can’t view from their mobile devices. Not to mention the risk of printed spreadsheets being left in the copy room, on employee desks, or in conference rooms. In 2019, sales representatives expect a secure online dashboard which they can access from anywhere. If you’ve already got rid of commission spreadsheets, congratulations – you’ve earned #3.
#4 – Accurate Commissions
Commission calculation errors can prove costly. Even a 0.5% error rate (which is a minimum without automation) can result in over-payment of tens of thousands. The bigger problem with inaccurate commission calculations however is that they create confusion and destroy trust. It signals to sales representative that management might be playing games with them. This causes sales representatives to more frequently initiate disputes, negotiate adjustments, or waste time reviewing payouts. In a medical manufacturing company, some sales representatives received 5 Excel spreadsheets for the same time period following various corrections. At this point, it’s impossible to blame them for being disappointed, increasing their level of scrutiny, or engaging in argumentative exchanges. Finally, it’s a lot harder to argue with an automated system than with a human. If your calculations were performed manually, you are increasing the probability of disputes, or of sales representatives harassing your finance / accounting department. If you’ve already automated all your commission calculations, hats off to you – you got #4.
#5 – Resilience
When designing an incentive plan, you need to think ahead. What if some representatives leave and accounts must be re-assigned? What is a competitor goes out of business and sales become a lot easier? What if an employee needs to go on a medical leave? Are changes to quotas during a period allowed? Do sales representatives need to formally enroll and accept terms and conditions? Should sales interns receive commissions? A weak incentive program leaves these to chance. A robust incentive program includes reasonable safety mechanisms to protect organizations (and sales representatives) from unpredictability (without transforming plans into a mine field of “gotchas”). By breaking down safety mechanisms into manageable chunks and investing in communication, organizations can make their incentive programs resilient without making representatives feel cheated. Another approach is to use simulations to create “what if” scenarios and make sure the plan will survive those conditions. If your incentive program is already legally protected and includes some capping mechanism, you are well on your way to earning #5.
So how well is your sales incentive program doing? What was your total score? Was it a paltry 1/5, or an impressive 5/5? If you feel your incentive plan can be improved, consider using automation. You have a significant opportunity to improve your incentive plan’s effectiveness by investing in a sales performance solution – ideally a solution without consulting or setup fees.