If you’re like most business owners, you know that sales performance compensation plans are essential for keeping your sales team motivated and driving results. But creating an effective plan can be tricky. How do you ensure that your team is appropriately rewarded for their efforts? And how do you avoid creating a plan that’s too complex or costly to administer?
1. Base Your Plan on a Metric Everyone Understands
Financial indicators such as revenue per salesperson, cost of goods sold per salesperson, gross margin dollars, and gross margin percentage are helpful for companies with more complex business models. But suppose your company produces a uniform product or service that is relatively low-priced and has minimal expenses. In that case, you might want to consider basing your performance measures on units sold.
2. Test and Track Your Metrics
The easiest way to arrive at a sales performance metric that works is to benchmark against industry averages and then test and track the results before you choose your final compensation plan. For example, if your business sells an entry-level product or service for $25,000 per unit and top producers sell upwards of 100 such units (a 10% commission on each sale), it might make sense for managers to earn 1% of their team’s sales volume as incentive pay. Testing this type of plan would entail comparing the resulting financial rewards against other similar businesses in your industry – those with similar margins and salary ranges and those with internal incentive pay plans.
3. Time Your Plan Right
You’ve probably heard the phrase, “Sales are made on closing time.” This is true for a good reason: People tend to perform better as deadlines approach. And if you try to motivate your team by saying, “We need more sales or else we will miss our goals,” they might not respond favorably. Instead of threatening, offer some extra incentive; for example, offer some bonus that can be achieved at various levels based on quotas. It might also help make sure your salespeople know what the first- and second-quarter goals are and what’s required of them to meet those goals.
4. Don’t Define Success as a Single Target
It’s not enough to reward sales team members for hitting their targets; it’s also important to recognize excellence and significant contribution beyond one’s own performance goals. If you want your employees to feel like they’re truly part of the business and its future, there must be room for promotion and advancement within the compensation structure. For example, rewarding managers based on an aggregate score that includes unit volume produced by their staff and their results reinforce the message that hard work is rewarded at all levels of the organization. By using incentives that encompass individual and team performances, your company will be more likely to motivate employees at every level of the organization.
5. Track Non-rewarded Behaviors
It’s not enough to reward sales team members for hitting their targets; it’s also important to recognize excellence and significant contribution beyond one’s own performance goals. If you want your employees to feel like they’re truly part of the business and its future, there must be room for promotion and advancement within the compensation structure. For example, rewarding managers based on an aggregate score that includes unit volume produced by their staff and their results reinforce the message that hard work is rewarded at all levels of the organization. By using incentives that encompass individual and team performances, your company will be more likely to motivate employees at every level of the organization.
6. Make It a Balanced Scorecard
Incentives should never replace a good salary and benefits package, but they can serve as a welcome enhancement that motivates your sales team to improve their productivity through greater efficiency. This means rewarding top managers with incentive payouts based on the overall success of the business but also including some metrics, such as time management and production quotas that force employees to focus more on their activities without sacrificing personal responsibility or professional development. In so doing, you’ll ensure that your incentives are seen as enhancements rather than replacements to the base salaries you already provide.
7. Align Compensation with Actual Roles
An effective incentive plan requires suitable targets and the appropriate payouts for these objectives. Don’t base your payout structure on arbitrary numbers or what you think you can afford. Instead of basing your plan on amounts that might seem significant but don’t fit into your budgetary structure, why not offer something more tangible that acknowledges real value based on specific results?
While it’s essential to lay the groundwork for an incentive program, the design and delivery of your plan are more critical than ever before. Companies can no longer afford to treat employee incentives as simple afterthoughts. Instead, companies need to carefully consider how their sales teams will achieve their goals and then craft a comprehensive set of targets that provide both focus and motivation.
