Sales Comp Best Practices: How to Improve Your Plan
Sales comp planning season is upon us! It is time to start evaluating your current compensation plan and improving it for the upcoming year. However, this can prove to be a challenging task for companies. To help you build a strong, successful plan for the upcoming year, here are 10 sales comp best practices you need to know!
1. Changing is not Just for “Bad” Plans
The most important thing to remember is that changing and updating your sales comp plan does not mean your current plan is bad. The best compensation plans update and change as the company grows, adapting to new goals, sales needs, and internal company changes.
A good way to gauge if it is time to update your plan is how your approach to the sales role changes. If you are tweaking sales’ role, you will also need to reevaluate your compensation plan to ensure it incents the right rep behavior.
2. It is More Than Just Your Comp Plan
Sales comp plans need to first and foremost encourage sales teams to perform, but this alone, won’t produce sales success. While your incentive plan is a necessary tool, it is important to understand that it is only a part of your sales success.
Even the most well-designed plans have limitations and can only do so much. Most importantly, your sales teams also need solid management to guide them, direction on how they should work towards quota and company goals, and role clarity to understand what is expected of them.
Watch the webinar, "Sales Compensation Trends and Best Practices," to gain first-hand knowledge into industry trends in sales compensation, including planning best practices, tips for reducing sales attrition, and key metrics to benchmark against,.
3. Assess Your Company’s Current Challenges
To implement sales comp best practices, your plan must address metrics within the company that need to be improved. Start your comp planning process by evaluating the previous year and identifying any issue areas.
With that knowledge in hand, you can build smart company goals, define sales’ role in achieving them, and identify compensation to incentivize sales teams.
4. Identify the Behaviors You Want to Reward
Plans that follow best practices lay out sales team expectations in their foundation. This starts with your company goals. Create a list of action items to achieve your goals to help define your expectations of sales teams.
Start by asking yourself the following questions:
- What do we want sales to do?
- What type of customers do we want sales to bring in?
- How involved do we want sales with customers post-sale?
5. Use Compensation to Create Sales Priorities
Alongside your goal-achieving action items, you must emphasize the priority of your company goals to sales teams within your compensation plan. You can create priorities through the structure of your compensation plan. For example, you might consider implementing a weighted incentive plan.
A weighted plan will allow you to compensate more for high-priority sales, while ensuring that lower priority sales aren’t completely ignored. This will guide sales reps and help them focus their attention in the right areas.
6. Keep Your Plan Simple and Explain It Thoroughly
While you want to have a detailed compensation plan, you should try to keep it as simple as possible. Do not let your plan become so complex that it cannot be explained easily and as a result, confuses both sales managers and their teams.
Rather, aim for your plan to be detailed so that it clearly defines company goals, sales team expectations, individual roles, and the actions that earn commission. For individual sales reps, consider one-on-one meetings that will demonstrate how the new commission structure compares to the previous plan.
7. Expand Margins Beyond Gross Revenue
In the past, traditional sales compensation plans have been based on gross revenue, using that as the focus driving commissions. Stronger plans find ways to expand margins beyond gross revenue, more specifically, profitability. Many of today’s plans don’t have enough focus on profitability, which, in most companies, is more important than gross revenue.
A focus on profits encourages sales reps to not only make sales, but pursue deals that are profitable for the company. One way to do this is to set a limit on discounts, which makes sales reps focus on the most profitable sales opportunities, products, and overall sales strategies.
8. Make the Plan Measurable
Like smart goals, smart sales compensation plans are measurable. This means you can accurately track metrics that measure the actions and behaviors that result in compensation. It is important to find a way that makes this data easily accessible so that you can check in weekly, monthly or even quarterly to ensure you are on track to reach company goals.
Consider using a tool, such as Xactly Incent or Express, to track and measure this data and display in it a way that both sales managers and individual reps can track their progress towards quota and see their commission earned in real-time.
9. Include “Non-Sales” Teams in Planning
It is important to always remember that compensation plans touch more than just the sales team. Try to involve sales, marketing, finance, and HR teams from the beginning of compensation planning to ensure all suggested changes positively affect each team.
It is also a good way to help everyone understand how each department is involved in the compensation process. Ultimately, you want to aim for a win-win (or as close as you can get) for each team.
10. Consider Including Non-Financial Compensation
Financial compensation is often the most popular incentive offered to employees because money is a powerful motivator. However, non-monetary incentives have also proven to be successful (sometimes more so than money) at encouraging sales teams to perform.
Talk with your sales teams to find other compensation items that can be added to your comp plan. For example, you might consider tickets to local events, such as a sporting event, concert or festival as incentives for sales reps (check out a list of more than 100 non-financial incentive ideas here).
As you start updating and changing your compensation plan for the new year, remember that it does not have to be a daunting task. With sales comp best practices in mind, you can create an incentive plan that motivates employees and is a win-win for every department in your company!
Already have a new incentive plan for next year? Schedule your personal Xactly demo to help implement your plan more smoothly!
Designing Sales Compensation Plans
With careful consideration and strategic design, you can use incentive compensation to inspire your teams and empower them to perform above and beyond the competition.