7 Signs Your Sales Compensation Plan Needs a Refresh
August 05, 2020
Building and maintaining an effective sales compensation plan is important. Your plan is influenced by your team’s performance, your company’s financial and business goals, alongside external factors such as economic fluctuations and changing market conditions.
These factors will evolve over time, meaning a commission plan that suited you yesterday may not work today and almost certainly won’t tomorrow. But how can you tell if your plan is still working for you? Thankfully, there are certain trigger points that, if you monitor closely, can tell you when there’s something you need to address.
So, here are 7 signs that could mean your sales comp plan needs a refresh.
1. Your highest performers aren’t earning the most commission
It goes without saying that an effective sales compensation plan should reward your highest performing salespeople most of all. Doing so ensures your team stay motivated and remain loyal to your business, ultimately leading to lower turnover.
If you find that your top sellers aren’t earning the most commission, it’s something you need to address urgently.
Your sales and revenue targets should also be aligned. As Reward Consultant Jon Clark describes in an article for the Sales Management Association, 90% of your sellers should be hitting their payout threshold, 60-70% should reach target, and 10% should reach the point of excellence.
Moreover, if more than 50% of your team are regularly missing their targets, you need to review your payout curve.
Source: Sales Management Association
2: You have a high turnover in your sales team, especially amongst high performers
Sales compensation plans are designed to create a culture that recognises and rewards success; after all, if your sales team grows, so does your business. If you aren’t rewarding your team, especially your top performers, they’ll soon move on.
Not only does this leave you with a compromised pipeline, revenue stream, and possible knowledge gaps, it also adds cost and time pressures as you look to recruit and train their replacements. What’s more, if your plan isn’t right, you might struggle to motivate your sales team, which will add to the problem.
On the flip side, some organisations retain their existing plan for fear of creating higher turnover in their sales team. This too is an ineffective strategy if you want to achieve long-term success.
3: Your sales team regularly query their commission payments
Clarity, trust, and communication are all essential parts of a successful sales comp plan. If your team don’t understand how their commission structure works or have concerns over the accuracy of their payments they’ll understandably ask you a lot of questions.
Not only will this take up a lot of your time as you cost-justify payments on an individual basis, it probably also means your team are shadow accounting (keeping their own payment records) to detect mistakes and inconsistencies.
This back and forth leads to lower productivity all round and is one of the biggest signs that your plan needs a rethink.
4: You’re paying commission, even if targets aren’t being achieved
As we mentioned in sign 1, you typically want 90% of your team to be hitting threshold (the point below which there is no payout) and 60-70% to be hitting target. However, if you find that you’re paying incentives even when targets are not being regularly hit, it’s a sign that you need to adjust your threshold and target levels.
What happens if you leave them? Your team will quickly become inefficient as they’re no longer incentivised to hit their targets. In turn, this will impact your sales and revenue goals.
5: Your sales goals aren’t aligned to your business goals
A commission structure that fits hand-in-hand with your growth targets is crucial. Indeed, it’s what ties the motivation and reward of your sales team to the overall strategic and commercial goals of your business.
If profits are down, it’s another sign that your comp plan needs work; be this to adjust your model to fit in or build one to promote a new growth strategy.
You should also consider whether you should measure your sales performance by revenue or margin, something we explored in a comprehensive blog published by the Sales Management Association.
6: You’re struggling to find room for new products and services in your compensation plan
Your offering is rarely static. As you add new products and services to your portfolio, you’ll come up against differing margins, CapEx and OpEx models, and even new marketplaces that your team may be unfamiliar with.
Your plan needs to be agile; able to reflect these new offerings and encourage sales team buy-in. If it doesn’t, your team will likely stick to products and services they feel comfortable with and, of course, earn them the most commission.
If you’ve recently been through a merger or acquisition, integrating two teams with disparate commission structures can also be difficult without the right tools.
7: Changes in buying behaviour aren’t reflected in your commission structure
As part of a blog about customer-centric incentive design, we looked at a B2B buyers survey by Aberdeen that revealed that 62% of respondents said vendors who identify a new way to solve an established problem are most valuable, while 66% said this would shorten the buying process.
In short, if you provide value during the buying process, you’re more likely to be successful.
Providing this value, while ensuring your team are rewarded for their efforts, isn’t always easy. Access to online comparison tools, increased competition, and changing buying cycles all influence your plan and require it to be flexible. If it isn’t doing this, you need to address it.
The same is true if you’re looking to create more of a hunter sales culture, as changes within your team must be addressed with as much importance as those that are external.
Like to see if your sales compensation plan needs a refresh? Take our assessment using the chat feature on this page!
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