There are many things in business that often turn out entirely different than originally planned, and sales compensation is high on the list. When it comes down to it, it is very easy to:
- Pay out more in commissions than anticipated: Multiple reps overachieve on their individual plans, accelerators kick in, and all of a sudden the overall plan is way more expensive than expected.
- Spend more than what is necessary to drive desired behaviors: Reps might be motivated to sell more of a new product with a 25 percent accelerator, so having a 40 percent accelerator in your plan would be an unnecessary over-payment.
- Get blindsided by costs even when the sales team underachieves: You are not out of the woods in terms of costs just because the sales team does not perform (and really, an under-performing sales team is a much larger fish to fry). You can still end up paying more than expected due to accelerators in the plans of individual reps.
However, with big data intelligence, analytics, and comprehensive modeling, you can not only mitigate these risks but also optimize your compensation spend. Here are three key tips:
- Look back to plan ahead: We live in an information age. You likely wouldn’t buy a TV or car without looking at reviews, reports, and comparison studies. The same principle should apply to sales compensation. For the first time, empirical sales “big data” and advanced analytics are available to help you make more informed planning decisions. Companies using an automated system can pull and analyze their historical sales data and benchmark it against the best practices of similar companies to assess what worked and what didn’t. This kind of informed hindsight is the platform on which to build an effective compensation plan going forward.
- Be clear about what you are trying to incent: Focus your compensation plan to get the most for your compensation spend. Plans that try to do too much usually end up doing too little because reps get confused and their sales efforts become unfocused. For example, analyzing a decade of sales comp data in Xactly Insights has shown that the optimal number of plan elements is three. So keep the number of plan variables low and strictly aligned with corporate objectives in order to reduce overall compensation costs while still driving your desired behaviors.
- Model on both the macro and micro levels: Modeling gives you foresight into a plan’s probable cost and sales performance impact, and enables you to avoid costly and disruptive plan adjustments down the road. On a macro level, you need to model the total costs associated with a proposed plan. On a micro level, you need to model how a plan will impact payouts for particular team members. Clearly, you want all your reps to attain their quota. But you do not want your plan to penalize your highest performers, as that would discourage their efforts. Nor do you want your low performers to be unduly rewarded, as that would be simply throwing money away.
When you are using big data as a guide, and engaging in meaningful modeling, controlling compensation costs and performance becomes much easier. When done right, finance is happy, your auditors are happy, and most importantly, you have the right plans in place to drive the desired sales behaviors at the right price point.