3 Metrics a Compensation Plan Redesign Can Boost
Whether you just started your sales compensation planning for next year or are nearly finished, it’s absolutely critical to your sales org’s success that comp take a strategic angle. This means going beyond tactical actions to aligning your commissions plans with the broader business goals at stake.
The effectiveness of changes for your sales team can be easily undercut if incentives don’t reinforce the strategy. With this stipulation in mind, there are three primary income statement lines that can be significantly altered to key business drivers.
1. Incentivize an Increase in Revenue
Obvious? Yes, but this goal often gets lost in the shuffle—primarily through the mess of complex plans. For your organization to move, the sales engine needs to get power to the wheels. This means the incentives should minimize the gap between revenue goals and the comp plans you have in the wild.
The only way to effectively do this is to cut out the confusion of complex plan structures. If your plans have more than three measures, the only thing you’ll be increasing are the number of headaches. A plan that increases revenue is laser-focused on incentivizing behavior that gets salespeople hunting long-term revenue streams and increasing total sales volume.
2. Make Margins Matter More
While you’d think every company is always looking to increase revenue, sometimes the needs of a business say otherwise. If you’re a strapping young startup, you may initially look to grow revenue at the cost of profits to obtain the valuation needed for those sweet VC funds or that big IPO. But after so many years of a revenue-focused strategy, high costs structures, and low profits margins have made the revenue goals that led to your initial success unsustainable.
In this typical scenario, you must turn salespeople towards the most valuable sales, deals with correct pricing and structure. With incentives encouraging your team to chase after these components, margin can be increased.
3. Mind the Costs
As “the cost of doing business”, commissions cost are often overlooked in sales compensation plan redesigns. The power to control and limit costs in this respect is surprisingly underutilized. Typically, businesses assume that sales productivity will outpace sales compensation. This would be nice but is not the reality. But here are ways to cut costs with your comp plan.
A lesser known method for controlling costs is reducing the price of administering plans. You can also bring down the spend on delivering a company’s product or service with a better deal structure. Another solution is one that gets repeated a lot but seemingly never taken seriously: rep turnover. This phenomenon, like commissions, is taken as part of doing business. Yet, fixing un-motivating, unintelligible, or unfair comp plans can help you keep your best reps (revenue/margin source) and save on retraining, recruiting expenditures.
Why Redesign Your Sales Compensation Plan
Revenue, margin, and costs are just some of the business numbers your compensation plan can dramatically enhance. Ignore the cliche, but the possibilities are endless. From acquiring new logos to improving rep performance at mass to competing more aggressively against specific competitors, a redesigned comp plan can act as a redesign of how your business operates.
The Ultimate Guide to Sales Planning Season
It’s that time of year again. It’s Q4, and you’ve begun the challenging process of designing next year's sales plan. We feel your pain and want you to get the most benefit possible from your sales planning process. Download the guide today to make your upcoming sales comp plan your best yet!