One of the best way to improve sales-centric organizations is to design effective incentive programs. With employers spending anywhere from 5% to 25% of revenue on commissions, fine-tuning commission programs can have a significant impact on sales performance.
But what exactly makes some sales incentive plans much more effective than others? We interviewed Abhishek Singh because of his extensive experience in sales performance management as a consultant and as an implementer. Here are some tips Abhishek shared with us.
#1 – Embrace Sales Commissions
Performance-driven incentives are the backbone of superior sales organizations. Effective incentive programs encourage sales teams to reach for the next level of performance. For this reason, incentive programs should be seen as an investment – not a tax. Although designing an effective incentive program is a difficult task, there is social proof that finding the right balance between “too easy” and “too hard” results in improved performance. Giving yourself sufficient time to plan and evaluate your incentive program is one of the best investment you can make. The positive impact of well-defined incentive program cannot be understated.
#2 – Simplify Commission Plans
As long as this does not compromise alignment with business goals, commission plans should be simplified as much as possible. If an incentive plan is too complicated, its overall effectiveness will be diminished because representatives will not understand it. As a result, sales representatives will not implement expected sales behaviors. Measuring a plan’s ability to be communicated clearly should be an integral part of its evaluation process. Simplifying sales commission plans is the easiest way to lower the communication barrier and increase their impact.
#3 – Create Simple Variations
While it comes to designing incentive plans, any sophistication is best reserved to creating adaptations based on various audiences. In other words, it’s not a winning strategy to create a complex one size fits all plan and try to apply it to different environments. It’s more effective (and more manageable) to create several simpler plans, each with a different pay mix and target total compensation based on a set of products and territories. In addition, incentive plans must be competitive within their own territory. Sales representatives talk to a lot of people and will quickly realize if the compensation they are offered is inadequate based on their location or portfolio.
#4 – Differentiate Based On Roles
Another recommendation is to fine-tune commission plans based on roles. One option is to start the analysis from the “hunter vs. farmer” perspective, and then refine roles and corresponding incentive plans further. For example, a representative responsible for managing existing customer accounts has a very different sales activity profile from a representative responsible for cold calling potential customers. Because incentive plans have the ability to promote specific sales behaviors, they should be customized to fit each role (or role type).
#5 – Do Not Over-Punish Poor Performers
It’s often best to design incentive plans which do not aggressively penalize under-performers. Sales commissions are a form of variable pay, and fluctuations do happen. Over-punishing poor performers can result in significant churn if quotas were over-estimated, sales were impacted by external factors, or even because of an accidental “miss”. Instead, the focus should be on providing considerable accelerated payment to the best performing sales representatives. This increases motivation, but also helps companies manage poor performance on their own terms.
#6 – Don’t Forget About SPIFFs
Another tip we received is that SPIFFs (Special Performance Incentive fund) should be a major part of any effective sales compensation plan. Announcing SPIFFs can help repair incorrect quotas, but also keep the momentum going. They keep incentive plans exciting and challenging. More importantly, SPIFFs do not always need to be monetary. They can also take the form of prizes, announcements, or other meaningful employee recognition. In other terms, SPIFFs keep incentive plans dynamic and exciting.