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Sales Courses for Re-Configuring Your Sales Incentive Plan

It is said that the sales person's mind works faster and more accurate than a super-computer when it comes to calculating their incentive payments.  They know how to reach their targets and optimize their pay by taking the most efficient of all actions.

Yet, despite all the incentives that companies give their sales people, there are still some chronic problems faced by most sales forces, such as:
Selling low margin items and foregoing higher margin ones, since it's easier and a lot faster to sell;
Pushing products rather than providing solutions that will deliver long-term benefits to customers;
Selling to the same customers and not doing enough to develop new ones;
Communicating with the same, singular contact in the customer's organization most of the time, and not taking the initiative to develop more relationships with more people;
Making lots of customer visits that eventually produce little results etc

While a lot of training has been conducted to enable sales people overcome the above issues, their behavior still remains very much the same.  Now that we are all in economic winter, budgets and time for sales training are likely to be slashed further. 

In any case, having the right training for your sales force is just part of your solution towards better sales performance.  Giving your sales people the right incentives so that they are focused on doing the right things may be more important than the training itself.

What Gets Paid Gets Done

Here are some common ways how sales people are paid for their efforts:
Commission based on a percentage of the sales revenue;
Bonus based on the achievement of a pre-determined annual sales target (based on sales revenue);
Profit -sharing based on gross profits or sales margins; etc.

     Of the 3 common ways, 1 and 2 are the most common, while some companies are beginning to focus on achieving good margins in addition to sales revenue.  Still, sales people are rewarded by the dollars-and-cents that they bring in, rather than on how they can develop sustainable "pipelines" that will provide revenue in the future, and are also less prone to vicious price competition.

Here's a simple example.  Imagine that you work for a company that sells computers to other companies.  You sell both desktop computers as well as servers.  While the margins for desktop computers are getting thinner by the day, if your customers identify with your brand, they will tend to buy from you.  Even if they may haggle some discounts from you, but the sale is relatively easy.
 
However, selling servers are a little more complicated.  You will need to find out more technical details about your customers' requirements, and customers are also quite particular about how your product performs, as well as the after-sale maintenance agreements.  While servers are comparatively less prone to severe price competition (than desktop computers), it may take twice as long for you to make the same amount of incentive pay selling servers than selling desktop computers.

Hence, it's going to be a no-brainer for you to keep focused selling desktop computers than selling servers, even if your company needs to establish itself as a major seller of high-quality and high-performance servers.

To incentivize sales people to sell more of the difficult products (or to difficult target customers), come companies provide "spiff" for the hard sale, i.e. additional bonus or commission to sell the hard-to-sell stuff.  but this may or may not work for you, especially in hard times.
 
In the real world, things can be a lot more complex, e.g.:
Some solutions are so complex that you will require the efforts of your engineers or technical colleagues to help evaluate customer needs and draft proposals.  As such group incentives may be needed;
Some existing customers are simply not going to give you significant re-orders in the near future, and customer service staff may be called to do the servicing of customers via phone and online means, and close the small deals as well.  You will only be paid if you or your customer service colleague identifies some new buying needs from your customer, and you helped close the new deal.  And you will get the bigger share of the group (you and your customer service colleague) incentive for the new deal;
Sometimes it may take months if not years to develop new customers, or to get other departments in your existing customers to buy new solutions from you.  If you are not compensated for the months of hard work (which may or may not lead to anything), you won't invest in the time and energies in it, etc.

Given the tough economic times where companies will want to reduce (sales) costs and still motivate your sales people to sell the hard-to-sell stuff, here are some broad suggestions:
If your sales people are still pretty much selling the same stuff (low margin products or dealing with the same customers or pushing products instead of providing solutions), instead of paying them the full commission or bonus, pay them half the amount instead.
If your sales people (and non-sales staff too) went through thick and thin to get the hard sales, pay them the full commission or bonus (but pay them as a group is it's a group offer).
If you keep track of the progress of your sales people working their "pipelines" to develop new customers, AND you don't have the budget to reward "effort" only, give sincere praise and recognition in your weekly, monthly or annual sales meetings.  Who says incentives must always be monetary-based?

Compensating Sales Managers    

Traditionally, sales managers are paid:
Either by a direct over-ride on the sales achieved by her team;
Or with a bonus upon achieving or exceeding the team's annual sales targets

Given the changes in the sales team's incentives mentioned above, sales managers' compensation would have to be modified a little as well, for best results.
 
If sales people are no longer paid according to just the amount of sales they bring in, then managers should also have more sophisticated ways measuring (and paying) for performance.  Besides sales turnover, sales managers can be measured by a combination of 2-3 criteria, which may include:
Sales turnover/ gross revenue;
Maintaining a certain level of margins;
Sales of products or solutions that are strategic to the company; or
Acquisition of new customers that are strategic to achieving future targets

The above criteria can be measured as summation of separate factors, i.e. the manager can be paid x amount for achieving 100% of targets and y amount for achieving 80% of 30% margins.  Or they can be paid in a matrix mode where if both or all criteria do not hit 100%, they will not get 100% of their bonus.  Conversely, if both or all criteria exceed 100%, they will receive exponential rewards, to motivate them further. 

In an case, there should not be too many criteria to measure and compensate sales people or managers, or they may be confused as to exactly what their company wants them to do.  Having three criteria will be a good number to work on.

Getting Them to Buy-in

Expect most if not all members of the sales team being upset when management wants to tinker with their incentives-scheme.  For all you may know, some sales people, especially the better ones, have already make plans on how they should spend their commissions and bonuses if they work according to the existing plan.  Some may have even borrowed (heavily) against future earnings.

However, if there is a need to re-focus and re-align the sales force's performance to your strategic goals (especially in such unpredictable and turbulent times), then you may have to find ways to win their support.
 
One thing to avoid is to announce the plan abruptly, and force your sales people to accept it.  That is almost a guaranteed way to lose your best sales people immediately. 
 
The other thing to avoid is, in the event that you do lose some of your good sales people, you chickened-out and revert to your old plan.  Your remaining sales people may have already be accustomed to the new plan by now, and a revert to the old plan will cause more confusion, and you will soon lose those sales people who may actually succeed with the new plan.  In any case, if those sales people that you lost initially are really good, they will not be re-joining you any time soon.  So a reversion of the plans may make management feel good, but in reality will do a lot more harm without any good.

If you feel there is a need to re-configure your sales incentive plan, here are some suggestions on how to get acceptance and support from your sales force:
Tell your people the issues and challenges that your company is facing right now, and that a new incentive plan is required to make the company and its sales force more competitive;
Appeal to noble motives.  E.g., you can tell your sales force that if nothing is done, more jobs will be lost (and NOT that management will have lower bonuses);
Pro-actively get feedback and inputs from your sales force about their new incentive plan.  Not that you'll want to accommodate to all requests, but in doing so, your people will feel that their voices are heard.  Besides, you may get some great ideas too;
If there are heavy resistance from some sectors, you can implement the new plan as a pilot on those teams who are most likely to succeed first.  That will give you credibility and momentum to push forward your reforms.
Understand that your incentive plan is just part (although a very important part) of how you can get better performance from your sales force, and you will need better training, hiring and leadership for your sales force if they were to scale to greater heights;
Understand that no matter how hard you tried, there will be people unhappy with your new plan.  There may be some good people who will leave no matter what you do.

Ultimately, there will be risk in making any changes, and changing sale incentive plans definitely belongs to the higher risk category.  That's probably why many sales incentive plans are way out-of-date and do not align sales performance to the company's sales strategy.  However, give such turbulent times that we are in right now, it may just be a good reality check for sales people to understand that it's time they make the necessary changes for the greater good, as well as to make them better sales people for the future.

Source: C.J. link

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