One of the most common unproductive tasks sales people are frequently compelled to do is their own commission calculations and accounting. This practice, often called shadow accounting, is an entirely wasteful process that uses valuable hours that salespeople should spend selling.

It boils down to an issue of trust. Does the rep trust the system that the company has in place? Does the rep understand the commission plan in place? Can the rep "see" what will be paid out in the future? You can eliminate this need for 'shadow accounting' by making incentive structures less complex and build trust in your plans. When sales reps trust the plan, they feel that the commissions that they are being paid are accurate. Therefore accuracy is not the issue, the belief that the plans could be inaccurate is the issue. You can start by asking this question: When the sales rep gets their plan document to start the selling year, is that document understandable, concise and clear? If you have used Best Practices when building your plans, people will be able to see where they can make their money and not have to dig through the plan. The plan document will be able to communicate these ideas simply if there are fewer than four measures that they will be paid on contained in the plan. The easier is the goals of the plan are to understand, the greater the trust and consequently more time will be spent selling and achieving both individual and company goals. When a plan is simplified, the fear that there are errors disappears and the "shadow accounting" problem soon dissipates.

Christopher Mason
Director of Sales

So many companies wait until the last moment to review their plans and modify them that there always seem to be an inevitable craze to model and document the changes. The evidence is everywhere:

• Overnight sessions before the kickoff meeting putting the final "tweaks" into the plan documents

• Incentive programs that drive unintended behavior

• Plans for different job functions that look like they come from different companies

• Dense documents that are hard to read and full of ambiguities.

• And the list goes on...

So, I say, get started now.

Now you might say - "we haven't finished our strategic planning so what can I do?" Turns out there is some excellent analysis you can do now that could not only inform your comp plan design process, but also be of great help with the strategic plan. Here are 5 things you can do now to help:

1. Assemble ALL of the existing plan documents and create a master view that allows you to compare the most significant components side-by-side. You want to understand the earning potential of each role, the key measures and goals and the value to the individual for achieving them. (Check out our alignment view for an example.)

2. Review your customer segmentation. Check to see if your territories are adequately assigned and your team has the best skills to address your most important segments.

3. Assess how your reps spend their time. Understand what percent of their time is spent finding new business, working with existing customers, or doing internal administration. Consider adding job roles if you identify inefficiencies.

4. Look at the quota attainment distribution of your direct sales reps. Create a graph that shows the percent of reps at each level of attainment. See who are well above quota, at quota, and below. You should have a nice bell curve. If you have a U shaped curve....you will need more time planning! Your territories and quotas may be seriously out of balance.

5. Understand what you are paying in incentive costs by order. All too often this information is so buried in spreadsheets that you don't really know the cost and can be overpaying when multiple roles are involved.

Liz Cobb, Founder, Chairman and CEO

I'm often asked if sales comp planning occurs only once a year, in advance of a new year. Sales comp planning is really a ‘process' and not an event. You may do the bulk of your planning in a given period of time, circumstances frequently change that require a review of the comp plan. Here are six (6) factors that may cause you to review or adjust your sales comp plans or structure:

1. You need to create new territories due to an increase in sales or as a result of new hires. Dividing territories usually calls for adjustments in quota allotment and hence adjustments in compensation

2. You add a new sales role - i.e. a telesales, and you need to not only build a comp plan for the new sales role, but need to add the cost of this new plan to your Cost of Sales and revisit your cost model to ensure the plan is still in-line with financial budgets

3. You introduce new products which weren't included in the original comp plans. You may need to provide a completely new incentive component, or promote a certain mix of old vs. new products

4. None of Your sales team is achieving their goals. You may have set goals or quotas at a level that no one can attain. To keep your team motivated and driving forward, you may need to adjust quota levels for your team to achieve success. A best practice would be to structure team goals so that approximately 60% of your team is at or above plan.

5. Your plan is not motivating the right behavior. Your sales team is making money because they have figured out how to ‘work the comp plan' but their achievements are not aligned with company goals. You need to ensure that your entire team's incentive structure is aligned with the company achieving its goals.

6. Your Cost of Sale is too high. You may have designed a great comp plan in terms of motivating your team, but the Cost of Sale ends up making the plans not affordable to continue paying the current incentive rates.

Makana Motivator allows you to manage the dynamic nature of sales compensation changes. You can quickly and easily perform what-if scenarios with inputs such as quota levels, commission rates, staffing levels and territory assignments and graphically view how these changes will impact your sales comp efforts. The modeling capability allows you to verify that the plans you developed fit within an acceptable Cost of Sale budget. Once you have designed and modeled your idea comp plan, Makana Motivator automatically generates a comp plan document using your design inputs.

Larry D'Angelo

It is never too early to start planning for next year's sales compensation plans.

That said, the problem with starting to design your sales compensation plans before your company strategy is known is that you may design great looking compensation plans but they may not help your company reach its goals. You need to make sure that the performance measures for your compensation plans will support your company in reaching its strategic goals. So designing sales compensation plans without keeping the strategic goals in focus could result in your sales reps delivering something else.

If the strategic goals are set, you can keep them in focus when designing your plans. You can also ensure that the quota is accurately deployed. So if your company needs $10m in revenue and you have 5 sales rep, each rep can carry a quota of $2m. But if you company goals are now $12m, you now have the option of looking at increasing the quota for the existing reps or adding a new head.

The alignment view and modeling that is included in Makana Motivator will help you design plans that support your company's strategic goals.

Teanna Spence, Compensation Director 

Recently, we held our monthly live Best Practice Webinar,

Common Pitfalls in Sales Compensation with sales comp expert Beth Carroll of the Cygnal Group.    It drew record registration and attendance highlighting how starved people are for assistance.

Beth and Makana Soltuons’ CEO Liz Cobb walked attendees through the most common pitfalls in sales comp and how to avoid or rectify them.  Their presentation drew the highest satisfaction ratings of any of the previous 6 webinars we have recorded.

We asked attendees in the post webinar survey which of the pitfalls they had experienced, and the results were equally amazing – see the below list.  96% of all respondents were experiencing at least one of the pitfalls and 65% of those were experiencing multiple pitfalls.

Sales Comp Pitfall and % of respondents that have that pitfall

• Plans with unattainable goals                     47%
• Plan that don't motivate                               41%
• Plans that overpay or are too costly         34%
• Credit wars among team members          34%
• Plans with too many measures                  29%

As Beth and Liz point out in the webinar – a lot of these can be avoided or rectified without too much effort.  You can watch the recording to learn more about these pitfalls and how to avoid them.  Let us know what you think.

Beth and Makana Soltuons’ CEO Liz Cobb walked attendees through the most common pitfalls in sales comp and how to avoid or rectify them.  Their presentation drew the highest satisfaction ratings of any of the previous 6 webinars we have recorded.

We asked attendees in the post webinar survey which of the pitfalls they had experienced, and the results were equally amazing – see the below list.  96% of all respondents were experiencing at least one of the pitfalls and 65% of those were experiencing multiple pitfalls.

Sales Comp Pitfall and % of respondents that have that pitfall

• Plans with unattainable goals                     47%
• Plan that don't motivate                               41%
• Plans that overpay or are too costly         34%
• Credit wars among team members          34%
• Plans with too many measures                  29%

As Beth and Liz point out in the webinar – a lot of these can be avoided or rectified without too much effort.  You can watch the recording to learn more about these pitfalls and how to avoid them.  Let us know what you think.

 Arthur Gehring, Director of Marketing

Last week we rolled out a new program, Get a Game Plan, to help companies get started on their 2009 sales compensation planning. This program includes a free full year subscription to Motivator, our sales comp planning software and a free webinar on what companies should be doing now to derive more benefits from their plans in 2009.

So this begs the question, why would we give Motivator away for free? Motivator subscriptions are off the charts, in fact the quarter ending in June was a record by several hundred percent over the previous quarter. Also many subscribers are already saving real money -follow this link to see what they have been saying

The reason we are giving Motivator away for free starts with our company mission - to help companies be more effective with their sales compensation planning. And one of the pitfalls (follow this link to last week's webinar recording for more) our sales compensation experts frequently see is that companies start their sales compensation planning too late and shortcut the process - not leaving enough time for important activities evaluating last year's results, involving other functional groups, cost modeling - and they end up regurgitating last year's plan with some minor updates - reinforcing any flaws.

This program is only for a limited time, and as we all know, the early bird gets the worm, so the Get a Game Plan was envisioned to incent more of you to be early birds to help you get started and provide some guidance as to what you should be doing now.

Arthur Gehring, Director of Marketing 

As CEO of Makana Solutions and someone who has spent much of my career automating sales compensation bio, I am excited about the launch of this blog. One of my founding principles of Makana Solutions is to empower sales management to optimize their sales resources through easy access to relevant best practice information on sales compensation. On a regular basis, I, our team of experts, as well as recognized industry authorities, will post what we hope you will find to be relevant, thoughtful advice on sales compensation issues. So let's get started.

SaaS and subscripton-based sales compensation

We recently hosted a webinar with industry experts Jeff Kaplan and Tom Wilson, devoted to the unique challenges of sales compensation in this business model. We recorded the webinar so you can see it in its entirety, but we had so many great questions during the webinar that this is a topic we will be revisiting often and will post relevant information in an area of our site dedicated to SaaS Sales Compensation Best Practices. Below is one of a number of key ideas that came through.

Starts with Strategy and the relateds business roles

We learned in an advance survey of attendees that many of the attending companies had transitioned to the subscription-based model from a traditional enterprise license. Tom Wilson, our guest compensation expert , compared the significant differences in the sales roles for the two models. In the enterprise software model, Tom pointed out that the role is typically one of a "big game hunter" where the sales rep's responsibilities are:

• Find and influence the buyer where the value proposition is based on "projected" return on investment
• Negotiate price and terms
• Close the large "contract" sale
• Design and train to use effectively
• Sell upgrades and expansions

In a SaaS model the responsibilities shift to one of "Master Chef" where the rep's role is to:

• Find and influence the user & buyer where the value proposition is based on "experienced" return on investment
• Negotiate subscription terms
• Close a "commitment" sale
• Tailor and training to expand usage
• Embed the system into the business
  

When the job role shifts this significantly, it is important to take a fresh look at both the skills of the team as well as supporting roles and not just "tweak the plan". Good plan design follows the business strategy. Once you have clarity on the roles and how each role influences the customer, the measures and incentives will be much easier to identify.

There were many questions from the webinar participants that we had no time to answer. Stay tuned to the blog and ask more. I will use this forum to continue the dialogue.

Liz Cobb, Founder, Chairman and CEO