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6 Tips to Improve your Sales Compensation Plan

By Hector Salinas

Salespeople are often the major profit drivers in most businesses. As such, it is in these organizations' best interest to keep them happy and motivated. This will translate to better performance, which is directly tied to higher revenue generation.

This is mostly accomplished by offering incentives that align the interests of the organization to the performance of the individual. Compensation plays a significant role as an incentive for high productivity. In that vein, a proper compensation plan is invaluable for an organization and its sales staff. The following are six ways in which one can improve on their current compensation plan and use it as a means of revenue and market share growth.

Examining the options

Compensation plans come in a variety of forms. Picking one at random would not be a wise choice to make, as every one of those plans in better suited for a particular situation. It is crucial to make a detailed study of what is most important to the organization and pick a compensation plan the best supports it.

All the plans should include “accelerators”-systems that allow better performing employees to achieve higher compensation levels.

Some of these sales compensation plans are the following:

Profit based: the commissions are based on the margins and are subject to change when change as the margin fluctuates.

Revenue/Quota: this is based on the volume of product moved.

Balanced: this encompasses different values like margins, revenue and quota attainment

Team: this is tied down to the performance of the entire team.

Use data Insights to drive planning 

  • Rather than having the sales leadership depend on their guts, relying on actual data instead could be a highly useful way of identifying what was not working on previous strategies. This information could be used to modify the plan to increase performance.
  • Understand what previously worked. This is useful in creating future plans. It is vital to do an in-depth evaluation as the copy-pasting does not always work.
  • Use the data insights to motivate appropriate and goal-oriented behaviors in employees.

Get the right people involved

Creating a proper compensation plan might require expert knowledge, just like all other crafts. Leaders will extract a lot of benefits if they have a person with a significant breadth of knowledge concerning the topic.

Integrating people from various departments such as human resources, marketing, and finance could help as they would all lend their unique view on the situation, which will, in turn, be exceedingly useful in driving the entire organization forward.

Growth and revenue fluctuation and changes will affect all parties involved. It is, therefore, important to ensure that all parties are invested in the changes that will take place to improve those metrics.

Tailor incentives to fit each individual role

In an organization, various departments work toward revenue and sales growth. As such, it can be tempting to create a sales incentive that applies to everyone in equal measure.

That’s is, however, not encouraged as all sales roles are not the same. Some of these roles though principally serving the same purpose, have different levels of responsibility and difficulty involved. For that reason, various compensation modes should reflect that.

Make performance analysis continuous

Creating an incentive plan is highly advisable. Often some managers think that that is where the job ends only to realize that performance has not improved or worse has reversed. The solution to this problem is to roll-out the incentive plan and then track its implementation on a regular basis.

The plan may not be as perfect as previously thought. Hence, the constant and regular evaluation will reveal the shortcomings of the scheme which can be countered by tweaking it to reflect the business environment and its changes better.

Understanding the cost associated with sales

The business's purpose is the generation of wealth. In a bid to achieve this goal, it could be tempting to cap the compensation of salespeople. This is, however, not advised. Compensating them poorly will result in a high turn-over.

A good compensation plan should reward for strong performance — this way the organization attracts the best talent out there. Such a package looks at the cost of sales (CoS). This looks at the employee's compensation in relation to what they make in the organization.

An extra tip: Look at the environment

Businesses do not operate in a vacuum. The business environment should be considered when developing a compensation plan. The people responsible should have a clear picture of all the factors in play.

Variables such as promotions, product launches, and the industry in which they operate are all essential factors that should be considered when developing the plan.

Conclusion

Creating an effective sales compensation plan may seem daunting at first, but it pays off in spades. It should be designed to complement excellent performance by employees to not only increase sales and revenue numbers but also attract and retain the best talents. The business environment also cannot be ignored when drafting and updating the compensation plan.

Tags: Commissions, Sales

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