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5 Steps to a Competitive Sales Incentive Plan

9 min read

Compensation drives sales behavior, which means your sales incentive plan is a critical factor in sales performance and objective achievement. Designing your sales incentive plan takes careful planning and consideration of several different factors. The sales incentive planning team faces the challenge of balancing executive priorities and designing incentives that motivate reps. The resulting plan is your map to driving sales objective attainment for the year ahead. 

Ideally your organization will begin compensation planning at least 3-6 months before the end of your current fiscal year. However, a strategic sales incentive plan requires ongoing analysis and adjustments throughout the year. Kickstart your sales incentive planning process with our compensation timeline.

1. Setting the Foundation

Gather your previous and YTD data

Analyze sales performance data from the year wrapping up, as well as 2-3 years back. Understand what incentive structures have worked and which haven’t. Identify areas where your compensation plans have improved over time and where there is still room for improvement.

Assemble your team

Compensation planning requires several key players to ensure all your bases are covered. Your team should have a senior-level representative from six departments: sales, finance, human resources, marketing, compensation administration, and legal. It is also helpful to have a “gut check” with an outside compensation expert or consultant.

Know your planning teammates

It’s important to understand where your planning team stands prior to beginning plan design. Take time to get to know each team member; understand their goals and priorities for the year ahead. The better you understand your compensation “playing field,” the better you can keep planning on track and help prioritize objectives for the incentive plan.

2. Building the Framework

When: 3 months before rollout

Align all priorities and objectives

Start your incentive design broadly, then focus on specific key objectives. Take all of the priorities and start narrowing down to the most important. Set all executive priorities so they create an aligned strategy that contributes to the overarching corporate goals. 

Determine your capacity needs

With key data in hand, assess your current sales situation and where you want to be in the coming year. Use the data to understand your needs and consider the size of your salesforce, sales team structure, and your territory coverage and potential to determine what you’ll need to reach company goals.

3. Designing the Details

When: 2 months before rollout

Cultivate the right sales behaviors

Your incentives should be aligned with your main objectives. To do so, each part of your compensation plan should focus on driving the right sales behaviors. Each incentive should motivate reps to perform the behaviors that will help achieve company goals. 

Redefine sales roles

It’s important to understand that differing sales roles have different responsibilities, and their compensation plans should reflect this. Your sales managers and their reporting reps should have different compensation plans. Redefine what each sales role is responsible for and align incentives with each roles’ responsibilities.

Benchmark pay and performance

Data is a valuable asset. Use internal and industry pay and performance data to benchmark your compensation to attract and retain top talent. While your incentive pay should be competitive, avoid underpaying over-performers and over-paying under-performers.

Answer the what-ifs

When planning, we often like to envision the best-case scenario, but you need to know how your plan will perform in every circumstance. Test and forecast for best- and worst-case situations to ensure that your plan can still produce positive revenue even if the results aren’t as good as you hoped and aimed for. 

4. Rolling out the Plan

When: 1 month before rollout

Prepare senior leadership to communicate effectively

Your senior leadership team will be the first point of communicating the new plan. Therefore, you need their buy-in if the entire sales force is going to accept the new incentive plan. Start communication with senior leaders and have them pass down the new plan to managers and reps. 

Be transparent

Your sales reps need to fully understand the new compensation plan to perform. In this instance over-communication is never a bad thing. Be as transparent as possible in rolling out the new plan details, and allow opportunities for reps to ask questions and give feedback. 

Emphasize the benefits

In sales, changes to an incentive plan are often viewed as a bad thing. Your communication team should focus on ensuring that each rep understands the value of the new plan and emphasizing that the changes are for the better. If necessary, take reps aside and have managers demonstrate potential earnings for their teams under the new plan.

5. Analyze Plan Performance

When: Throughout the year, but starting as early as 1 month after implementation

Check in quarterly

Analysis of your new plan should begin almost immediately after implementation depending on your deal flow. At the end of each quarter, dive into plan performance, see if there is a need for a reset or shift in your compensation plan, and implement any changes that are needed. Note any changes to compensation and track metrics closely between quarterly analyses. 

Take performance data farther

Your pay and performance data can help improve sales retainment and lower attrition levels. Using predictive analytics, sales leaders can easily identify negative trends and dips in performance to identify reps that are at risk for turnover. Using this data can help shape compensation plans that retain top talent while reaching company goals.

Use your data wisely

As you start to round out your fiscal year, it’s time to begin thinking about the planning process again. Begin compiling the necessary data and analyzing your current plan. Understand the effectiveness of incentives on sales rep retention and motivation as well as progress towards quota attainment. With your strongest asset–data–in hand, you’re ready to start the process all over again.

Making Sales Incentive Plan Analysis a Continuous Process

First and foremost, your sales incentive plan drives sales behaviors. When designed effectively, it drives company objective achievement. Ensuring that your compensation plan is effective should be a year round process. Not only should plan strategically, but you should analyze the plan proactively throughout the year to ensure you stay on track to reach your goals. 

Want to learn more about sales incentive plan best practices or have your current plan analyzed? Schedule a consultation with the Xactly Strategic Services team today!