According to the 2015 CSO Insights Sales Compensation & Performance Management Study
, a well-designed sales compensation plan supports key business goals. The right plan helps you achieve quota, identify reps that need more coaching and increase forecasting accuracy.
However, to achieve these results, leaders must understand what motivates their team. I’ve always found the end of the year to be a good time to evaluate existing comp plans. Many companies start their fiscal year in January, and those that don’t often follow shortly thereafter.
A great way to start the annual review process is by looking at what’s most important to your sales reps.
Sales Compensation Plan Needs
Attainability of Quotas
Quotas need to be fair and attainable for a rep’s assigned territory or target accounts. Furthermore, territory assignments and accounts lists must be equitable, balancing workload and offering similar earnings opportunities across reps. If a rep doesn’t think a quota is achievable, they lose motivation.
The rule of thumb says that you should expect most reps (ideally 60-70 percent) to perform at or above their quota. But it should still be realistic for everyone.
Placing unrealistic and unachievable goals on your sales reps can have negative effects. An extreme example of this is the recent scandal involving Wells Fargo. Pressured to meet objectives – or suffer the consequences, including termination – employees opened as many as 2 million sham accounts. While other factors certainly played into the Wells Fargo debacle, it’s clear that the expectations being placed on employees were not achievable.
Accuracy of Payments
The CSO study found that over half of the firms surveyed use spreadsheets or manually calculate their commission payments. However, nearly 90 percent of spreadsheets have errors. Before adopting Xactly, Hyatt Hotels relied on spreadsheets
–which, the majority of the time, they estimated were only 80-90 percent accurate.
In addition to causing potentially costly errors for your business, inaccuracies reduce your reps’ trust. If they don’t think that they’re paid appropriately, reps can lose motivation, spend their day double-checking payments and going back and forth about mistakes. All of this takes away valuable energy and time that they should be spending on selling.
Reducing payment errors is one big reason why companies are adopting automated compensation calculations. With Xactly, for example, our customers have increased compensation payment accuracy up to 99.8 percent, while lowering disputes to 0.5 percent.
Speed of Payments
By eliminating delays due to inefficiencies, automation also increases the speed of settlement. Rewards that are delayed by more than a few weeks lose their effectiveness – so you want to pay as close as possible to the sale or the ‘win’ being recognized.
Before automating its sales compensation processes, LegalZoom, the leading provider of quality online legal solutions for families and small businesses, tracked all of its compensation on dozens of spreadsheets. Not surprisingly, this was a tedious and highly time-consuming task. Managing compensation and calculating payouts manually can mean weeks between the end of the month and payment. With Xactly Incent
, the company now has a transparent and centralized location for all compensation data, speeding payment processes. [Read the case study here
Simplicity of Plan Designs
It should be simple for reps to know precisely what they need to do to maximize their earnings. The payoff should also be clearly communicated to drive the desired performance. CSO Insights found that when salespeople know how they can maximize earnings, the “percentage of annual revenue plan attainment was 97 percent.” Organizations have a responsibility to create this environment of success with compensation plans that are easy for reps to understand and use.
As you design your comp plan
, be sure it clearly shows reps what results will maximize their earnings potential. Reps need to have a clear picture of what they need to do to improve performance, meet goals – and get the promised reward.
Furthermore, your sales reps – especially today’s tech savvy millennials – expect a visually pleasing and intuitive system. They want all of the bells and whistles – such as what if
scenarios about a deal’s potential value – but it must be effortless to navigate and understand.
Availability On-Demand of Current Plan Information
Sales people should have easy access to their commission statements – and more visibility than they get with a static spreadsheet. Reps want the ability to drill into the data, compare commission by month, view compensation across different product lines and more.
Plus, they want on-demand access to this information, so they can see it anywhere and anytime, especially how close they are to making their quota and how much they’ll earn when they achieve it. Giving them the ability to accurately estimate their bonuses and track their progress throughout the quarter motivates them to higher performance. It also lowers questions regarding commissions because they can review the details themselves on-demand.
Hit Goals with the Right Compensation Plan in 2017
The right compensation plan can improve your ability to meet objectives – increasing the number of people beating quota, as well as reducing turnover. Salesperson turnover is 5x higher than the U.S. national average for all jobs, and the cost of replacing and getting a new rep up to productivity is high – over $30K per rep in some cases, according to Aberdeen.
Solid sales retention is good for your customers and relationships, good for organizational stability, good for sales productivity, and good for cost management.
With an automated sales compensation plan that leverages powerful analytics, you can deliver accurate and timely payments for your reps, and give them a real-time view into their financial compensation data. This helps you get the buy-in of your team, improves employee morale
, and, ultimately, makes for happier and more motivated reps.
In addition to giving reps what they want, you’re eliminating potential errors that can cost your business in lost money and trust. Plus, you can do all of this using less resources and at a lower cost – a win-win you can’t afford to ignore.
To learn how modernizing your sales compensation plan can benefit your organization, contact Xactly