Sales Compensation Blog

It is the last day of the quarter/month for many sales people today. This starts the beginning of a painful administrative process for your payroll and sales operations. Below is a "story of the ‘deal spreadsheet.'"

1. This infamous "deal spreadsheet" is sent from sales or operations over to accounting where commission is calculated on each deal and inserted into another column in the spreadsheet- this can take up to 2 days.
2. The spreadsheet is then sent to sales managers for approval and discussion. 1-2 days
3. After their changes are put into the spreadsheet, it is broken into individual spreadsheets for each rep and emailed out with the appropriate deals, calculated commissions and expected total commission payment. 1 day
4. Sales people evaluate their spreadsheet, compare it with their own shadow accounting and the back and forth begins- this takes another day. 1 day
5. At this point, if there is a discrepancy, (and this happens about 90% of the time, according to this white paper) it requires emails or discussions between sales people and managers or sales people and admins. 1-4 days

So, up to two weeks after the end of the month/quarter sales people are still unsure of their commission amounts from last month/quarter, that is no way to build trust or motivate. Using spreadsheets is probably one of the most inefficient ways to build trust within your organization and it doesn't drive growth. Sales people don't feel like they can trust their comp spreadsheet, so they pick it apart every quarter and waste precious selling hours doing an administrative task that just takes from the bottom line.

What are you experiencing? What takes the most time in your process? What have you done to make it better?

Subscription sales are any sales that are paid on a recurring basis, usually monthly versus lump sums. Examples of products and industries that use the subscription pay model include: Magazines and publishing, SaaS (Software as a Service) companies, Cleaning Services, and Memberships (athletic clubs, wine clubs). When developing an incentive plan for subscription sales we recommend the following:

1. Keep it simple- focus on 2-3 metrics
2. Most important metric is Monthly Recurring Revenue (MRR)
3. Build annual quotas to incent performance throughout the year and prevent gaming of the plan

Things to consider/ ask yourself:

1. Are you better off with one year contracts to preserve the ability to raise prices or do you need multi-year contracts to improve attainment?
2. What is the cost of capital and how much is an incremental upfront payment worth?

Things we recommend:

1. If client attainment is low (<90% renewal rate) add accelerators to push sales of longer contracts.
2. Depending on the size and maturity of your company you may want to split your teams into two teams. One team will be your "hunters," who search for new business and are paid on the MRR metric. The second team will be the "farmers," who focus their attention on renewing existing subscriptions and will be paid on customer retention successes. Each team will be focused on their own metric and be paid accordingly.

This model does present some unique sales comp challenges - primarily managing the trade-off between providing enough incentive pay up-front to be motivating vs. minimizing financial exposure. We have a number of expert webinars that go into more detail on this topic. Let us know how you have managed this challenge.

Recession.  Down market.  What’s happening to sales? If you find yourself in this situation, read on. While sales comp alone isn’t an answer, there are many levers you can pull to help.

For starters, you should immediately look to the information stored in your commission system for analysis. Here you can  see if you are paying for performance; see blog entry, "Are you Paying for Performance", carrying poor performers, or  have any super stars. If you look at the performance distribution curve, you will have a great starting point for optimizing your team.

With this perspective in mind, the top strategies are:

 

•         Optimize your productivity
  
•         Look for new market opportunities
  
•         Reduce costs.

Optimize productivity.  There are a number of possibilities here.  First, you should consider rebalancing territories.  This problem will be obvious if you have one super star in a lucrative territory while others are well below quota.  By providing equal opportunity to all, motivation will increase. Second, consider lowering the quota.  Remember, you want 60% of your team to be at or above quota to keep their motivation high.  If you are certain your sales are going to drop, lower the quotas so the team is energized while you cut costs elsewhere.

Look for new market opportunities.  Now is the time to analyze your customers and identify any patterns of success. You may find that certain products are more profitable than others or you are getting traction in a particular vertical. Once you have identified a new market opportunity, changing the compensation plan to focus reps on the new area will reap immediate rewards.

Reduce costs. Many companies we are working with are combining the strategies above with lowering the base salary and increasing the upside incentive potential. With clear plans and a more lucrative upside, they are able to keep teams motivated while lowering the fixed salary cost.

These are a few ideas.  Come to our free webinar on Dec 10th "Sales Compensationfor Tough Times" to learn more.

Companies often spend a lot of time and money trying to design the optimal, most effective sales compensation plan. They may hire consultants, review detailed earnings history or run various analytics to ensure their team plans are good for the business. In doing so, they sometimes overlook the fact that the comp plan must be motivating for the sales team as well. It must reward the team close to the point of influence and provide them the right incentives throughout the year. What is one of the easiest and quickest ways to know if you are properly motivating your sales team  ASK THEM! Ask your sales team directly. A true team of professionals will tell you whether or not their sales compensation plans are motivating. I found by surveying the entire team, and then discussing the results and suggestions with a subset or core team yielded much better plans, and hence much better performance. When you include sales team input into your plan design, the team actually takes more ownership of their earnings potential and there tends to be less conflict or confusion around payouts. By asking them, you are also showing that you value their input and recognize them as part of the equation. You can ask them in person or with an online or printed survey. Using an online survey tool, live survey monkey - (free at www.surveymonkey.com) allows you to make it anonymous if you feel that you will get more accurate results that way.

Here are 7 basic survey questions you can ask your team:

1. Do you know what your goals are? Do you clearly understand them?
2. Do you feel your goals are achievable?
3. Do you find yourself focusing more of your attention on any one goal? If so, which one?
4. Do you clearly understand how you get paid, and what you need to do to get into your accelerators?
5. Have you run into any conflicts or found yourself competing with someone on your team (direct or channel) over the same deal or account?
6. Do you clearly understand company goals?
7. Do you have suggestions on how to improve your current plan that are in alignment with company goals?

Sometimes the obvious path eludes us, but is often the best. Let us know if this has worked for you.

Larry D'Angelo
VP Business Operations
Makana Solutions

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.

Arthur Gehring
Director of Marketing