If you already use an automated software solution to manage your sales commission program, you have the power to deliver a complex sales incentive program. However, automation can lead you to deploy more and more sophistication over time (ex: adding draws, splits, overrides, claw backs, scoring, formulas, etc.). You may succumb to the same temptation if your Finance team is highly capable, and ready to implement any special rules or other tweaks needed to “optimize” commissions.
Unfortunately, more and more sophistication quickly reaches a point of diminishing returns where reps are left confused, sales motivation is lost, and calculations become error-prone. Here is what you need to remember – to motivate your sales force, a/ they MUST be able to understand your commission program, b/ they MUST be paid on time, and c/ they MUST be paid the right amount. So how can you improve your sales commission program?
Rule #1 – Simplify
More often than not, special commission rules can be eliminated because doing so doesn’t impact spend, and because they have no influence on sales behavior. For example, suppose that you introduced retroactive claw backs. As a result, any cancellation should be counted against its original booking period. However, this leads to many complications, with no measurable benefit. Instead, you could choose to treat cancellations the same way as refunds – i.e. count them against the refund’s period. This simplifies the whole calculation process without affecting spend. More importantly, your reps will finally be able to understand their sales commission statements (it will no longer be fragmented) – and it doesn’t change the way your reps sell either.
In conclusion, to simplify your commissions, consider each special rule you have established in the past:
- Would eliminating / simplifying this rule result in the same spend profile?
- Would eliminating / simplifying this rule affect sales behavior at all?
- Would eliminating / simplifying this rule allow reps to better understand their commissions?
Rule #2 – Improve Attainment
Industry statistics show that 80% of sales reps fail to meet quotas. Experienced sales reps expect this because they know the rules of the game. They aren’t affected by what they know to be unreasonable quotas. However, more junior reps may be demoralized when asked to deliver unreasonable sales results. To motivate your sales team to deliver more, you need to present them with challenging goals – goals which they can achieve and even exceed. To improve your sales commission program, try redefining what 100% quota attainment means – without changing your payout structure. About 70% of your reps should be able to meet quota. Another 15% of reps should be under quota (low performers). And another 15% should be above quota (high performers).
In conclusion, to improve goal setting and attainment, check the following:
- What is the current quota attainment level for your reps?
- Which 100% quota value would lead to 70% of reps meeting sales goals?
- Which 100% quota value would lead to 15% of reps failing and 15% of reps exceeding sales goals?
Rule #3 – Fewer Cooks
Do you really need 4 reps to be involved in each deal? While team work is often required to win deals, in terms of commissions, too many cooks in the kitchen can be detrimental. First, commission calculations become more complex because they require splits. Second, each participant has a limited stake in each deal. Third, you may end up with no real “owner” (everyone expect others to take charge). Fourth, some of your reps may feel they didn’t get an appropriate share of total commissions. Fifth, this could cause you to double-pay commissions for the same deal. To address this issue, you must find a way to make each rep feel like they own 100% of a deal. One way to do this is by dividing mega-deals (whose commissions are split across 4 reps) into sub-deals, each associated with a single owner. For example, you could divide your single deal into a customer qualification deal (assigned to an SDR), a contract signing deal (assigned to an AE), etc. It’s a lot more motivating for reps to receive 100% of a smaller amount for a deal they own, versus 25% of a larger amount for a deal they share with 3 other individuals.
In conclusion, to reduce the number of cooks in the kitchen, check the following:
- How many individuals receive commissions for each deal?
- Is there a lack of ownership or reduced sales motivation because of splits?
- Does it make sense to divide each deal into sub-deals, each owned by 1 person?
Rule #4 – Refresh Your Plan
Even a well-designed incentive program can get boring after a while. To renew sales motivation, your goal should be to introduce something new at least every quarter. One of the most exciting way to do this is by including non-monetary rewards. In terms of variety, non-monetary incentives beat cash. Within each category (ex: travel, dining, entertainment, gadgets, relaxation, memberships, classes, recognition, etc.), possibilities are endless. Even better, you can customize rewards based on each individual’s personality. Another exciting option to spice up your incentive program is sales contests (just make sure to keep them friendly). One key benefit of sales contests is that everyone gets to participate, but only a few receive a reward, therefore limiting spend. Also note that adding exciting incentives doesn’t require you to completely redesign the core of your incentive program. The goal is only to ensure your incentive program remains exciting and fun – at a low cost.
In conclusion, to make your commissions more exciting, consider the following options:
- Introduce non-monetary rewards
- Introduce friendly sales contests
- Create personalize rewards
Rule #5 – Check With HR
When it comes to improving your sales commission program, your HR team can be your best friend. If some reps complain about sales commissions, it will more likely be to HR than to your sales leadership. In addition, your HR team can help you determine if your pay mix is correct, and whether your incentive program is competitive. Often, some sales incentive programs appear to function well (ex: commissions are paid correctly and on-time), but behind the scenes, reps are grumbling, employee churn is higher than it should be, or the pay mix isn’t optimal. Another way to improve your incentive program is by making sure roles make sense. For example, if an AE starts behaving like an SDR, it may be time to redefine the rep’s position and corresponding incentive plans.
In conclusion, to ensure your commissions make sense, check the following:
- Has HR received any complaint regarding sales commissions?
- Can HR provide benchmarks regarding employee churn, total compensation, etc.?
- Are roles (and associated incentive plans) assigned correctly?
Rule #6 – Re-Align With Goals
Most businesses evolve within a fast-moving business landscape. New competitors emerge, prices change, new products are launched, promotions become available, etc. One way to improve your sales incentive program is to regularly check whether commissions are well aligned with sales goals. For example, if your new priority is to promote a recently launched product, it’s important for your commission plan to reflect this because it is the biggest influencer of sales behaviors. In other terms, the best way to communicate your priorities to your sales team is by changing the way sales commissions are calculated.
In conclusion, to focus your team on the right priorities, check the following:
- Have key business goals changed?
- Which sales behaviors are required to support those goals?
- How can commissions be structured to best promote those behaviors?
In this article, we described 6 ways to improve your sales commission program. However, we didn’t include the best way to improve it – automation! Visit us online to learn how you can automate your entire sales commission program in 3 days or less.