It’s hard to imagine that an infectious disease could have such a global impact on sales. As sales leaders analyze the current situation, many are left wondering how sales commissions should be adjusted. Collectively, sales commissions represent 8% of revenue (a considerable expenditure). Sales commissions also drive most sales behaviors. This is not a business-as-usual situation and making adjustments to your sales incentive program should be part of the solution.
Preserving Sales Motivation
Let’s face it. Some of your reps may miss their quotas through no fault of their own. You may even need to eliminate positions, which will inevitably discourage your sales force.
Sales commissions (even if reduced) represent the best way to motivate your sales force to keep fighting. Consider the following adjustments to ensure your reps don’t get discouraged:
- Lower quotas to reflect current conditions
- Tell your team that you want to do the right thing and are lowering quotas. However, remind them that this is a quid-pro-quo. When the economy reboots, they should be prepared for quotas to go back up.
- Avoid excessive punishment of under-quota performance
- For example, instead of paying no commissions under quota, pay a small amount (ex: 1-2% of revenue) to throw struggling reps a lifeline. To absorb the cost, reduce accelerator payouts, which are more justified in high-growth mode.
- Include draws for key employees
- Draws are minimum commission guarantees. Normally, they’re only applicable to new employees during onboarding. However, assuming you have sufficient cash reserves, consider using draws to help retain top performers. Some of those draws may be recoverable – i.e. will need to be repaid.
Focus On Customer Retention
During a crisis, preservation can be a better strategy than expansion. For this reason, metrics which normally drive commissions, such as new business / new logo acquisition, can become less important than renewals or customer retention.
Sales commissions drive sales behaviors. Your reps want to maximize their earnings based on their understanding of how commissions are paid. Consider the following changes to protect your business:
- Reduce “new business” commissions
- Often, new business deals pays higher commissions than renewals. Send a clear message to your team. New business is now less important than during 100% growth mode. Payouts will be reduced accordingly.
- Increase retention-based commissions
- Most organizations pay lower commissions for renewals. In fact, some organizations pay no commissions for renewals! Consider introducing new retention-based performance metrics and increasing payouts for renewals.
Focus On Profitability
This may sound old-fashioned, but there was a time when sales reps wouldn’t earn commissions until they paid for themselves (i.e. their sales paid for their salary). This is an option of last resort, but it can make sense during difficult times because you can’t lose money on commissions.
The broader theme is – focus on profitability where you previously encouraged growth. Consider the following to deliver a sustainable incentive program which pays for itself:
- Switch to profit-based commissions
- Consider switching from a revenue-based commission model to a profit-based commission model. You don’t necessarily need to pay a percentage of profit. You could still pay a percent of revenue, with this percentage variable depending on margin.
- Establish a commission baseline
- If there is a way to identify a break-even point where a sales rep has paid for their own salary, you may elect to use it as a baseline for paying commissions (or for paying a more substantial commission rate).
Eliminate Commission Waste
If you’re experiencing a slowdown in sales activity, now is an excellent time to regroup and automate. This is especially important if you’ve been overly generous with commissions because “business was good”, or if you overlooked overpayments because it didn’t really affect the bottom line.
During tough times however, paying commissions for under-performance is a sin. You can’t afford to overpay because of calculation errors either. And you certainly can’t afford to waste hours generating / revising / sending / archiving commission spreadsheets.
In addition, this is an opportunity to gain a competitive advantage. Using Sales Cookie, you can:
- Eliminate commission spreadsheets
- Accurately measure sales performance
- Automate all commission calculations
- Motivate your sales team to deliver more
- Ensure compliance with legal and accounting standards
Please visit us online or reach out – we’d love to help!