Is it just about the money?:
Guidelines for establishing a sales compensation plan
In Sales, discussions about compensation are inevitable. Reps want as much money as possible. Businesses need reps to sell and are willing to pay them (within limits). But consider what Daniel Pink says in his book Drive: The Surprising Truth About What Motivates Us:
“. . . Most of us believe that the best way to motivate ourselves and others is with external rewards like money — the carrot and stick approach. That’s a mistake. . . . The secret to high performance and satisfaction . . . is the deeply human need to direct our own lives, to learn and create new things and to do better . . . ”
We can’t ignore that we do need to pay our good salespeople so they’ll stick around. While many business studies validate the point that money isn’t the sole motivator, simply throwing money at salespeople isn’t the answer, either. In fact, you won’t find lack of monetary compensation in the top six reasons people leave a company:
- Seeking new challenges
- Poor leadership
- Poor managers
- To improve quality of life
- Contributions not valued
- Inconsistent treatment of staff
So what does this tell us about developing compensation plans, retaining and attracting the best sales reps and keeping good sales reps motivated?
Compensation plans are as individual as each business. There’s no “one-size-fits-all” solution here, but rather a set of principles and guidelines you should consider when establishing your compensation plan:
- Sales management and its role
- Maturity of the business
- Marketplace
- Short-term vs. long-term needs and goals
- Culture (are sales reps berated for losing a sale, or is yours a collaborative culture where all resources are directed toward conducting the best service possible?)
- Organizational structure to insure people are assigned properly with clear objectives
- Pricing, margin and client incentive programs
- Total benefits (including auto, expenses, cell phone, healthcare, retirement)
Developing your company’s compensation plan starts with understanding:
- Your business model and philosophy
- Your business objectives
- Who the right people are
- Goals, expectations and accountability
- What performance is covered by salary and draw versus performance defined as exceeding expectations
While it’s not wise to constantly change compensation plans, sometimes change is necessary. You don’t necessarily have to change the whole plan, but simply make some adjustments. It’s important to consider:
- How many components are in the plan
- What are the assigned weights of each component
- Individual goals vs. team goals
- The base of the commission (gross profit, margin, new retained accounts, retained dollars, retained accounts, retained dollars, add-on sales, cross selling, internal referrals)
- If commissions are paid immediately or upon payment from the client
- Impact of adjustments and credits back to clients
- Other rewards such as trips or awards
Whether you’re introducing a new plan or refining an existing sales compensation plan, there are many elements to consider to ensure that the proper focus and activities are consistent with corporate objectives.
Create a plan that fits your business and your sales force. We'll help you gain an objective view about your current plan and how it might be improved. Schedule a consultation with Joe today.
Summary
This information presents a sampling of Rahal Consulting’s philosophy and approach toward sales and business development. With extensive and successful business experience accrued over numerous engagements across multiple industries, we are poised to help business leaders prepare for the future.
Rahal Consulting seeks to initiate a dialogue with business leaders and to objectively assist in the development and implementation of growth strategies and tactics.
To initiate a more in-depth discussion and for additional information, please contact Joe:
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Boston, MA 617-999-7262 Rahal Consulting Successfully accelerating the performance of sales organizations
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