What motivates sales reps? They might care about the company’s overall success and want to see the business grow, but when it comes down to it, they’re motivated by whatever earns them the most money possible. In short, they care about what their commission plan tells them to care about.
Comp managers know this in theory – but in practice, it can be difficult to know how to make a commission plan resonate with the reps it aims to motivate.
In this article, we’ll examine a few of the basic tenets of commission planning to help you develop and improve your plans in the most effective way possible.
Commission plans tips you’ll learn:
- 1. Your commission plan should be clear and simple
- 2. Your commission plan should be built on data rather than intuition
- 3. Your commission plan should deliver results in real time
- 4. Your commission plan should protect against detrimental sales activities
- 5. Your commission plan should be flexible
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1. Your commission plan should be clear and simple
Compensation managers often develop over-complicated commission plans, trying to account for every single activity and micro-goal that a sales rep should strive for. This approach often creates more trouble than it’s worth, confusing sales reps about how they should prioritize responsibilities and what their most urgent goals are.
It’s best to focus on the basics when developing compensation plans. Rather than trying to jam as many details as possible into the plan, start by answering the who, what, where, when, and why of each plan you create or update:
- Who does this plan apply to? All sales reps, individual reps on specific teams, team leads, sales managers? Once you identify who the plan is being created for, review the goals of that role and make sure the plan is in alignment.
- What performance metrics do you need to include in this plan? How do they align with specific sales goals you want your plan to achieve?
- Where is the plan going to be applied? If it’s targeted towards sales reps, does it apply to all sales reps or only reps selling to specific territories?
- When is the plan going into effect? Is this plan the new standard for the sellers it applies to, or is it a temporary plan that seeks to achieve an urgent and time-specific goal? If it’s temporary, what’s the timeline for this plan?
- Why are you implementing this new plan – or, why are you making these changes to an existing plan? Why are your current plans insufficient to accomplish your current goals? It’s important that you can explain the reasoning behind your decisions to all impacted sales reps.
2. Your commission plan should be built on data rather than intuition
Data is critical to sales comp planning; it helps you understand past performance and market conditions so you can accurately and competitively create comp plans that motivate reps. Unfortunately, however, many comp managers rely too heavily on guesswork when building plans. When you implement or change a comp plan, make sure the elements you include are backed by historical data.
For example, imagine you’re designing a new comp plan for the purpose of driving expansion among your existing customers. Your intuition may tell you to include an increased commission rate for upsells during the next pay period. The question is: How significant of an upsell commission rate should you offer?
In this scenario, you’ll want to take a step back and analyze historical sales data related to customer upselling. Look at how you currently reward reps for upsell deals and what results they’ve generated. Study how reps have responded to increased commission rates related to specific deal types in the past. This information will help you determine what commission rate will be the sweet spot between too low (doesn’t motivate reps to upsell) and too high (motivates reps to only upsell and start slacking on their other selling responsibilities).
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3. Your commission plan should deliver results in real-time
You’re implementing or changing commission plans so you can drive certain behaviors. But you’ll struggle to do so if it takes months for sales reps to fully visualize and understand the results of their efforts. It’s important that your reps have access to real-time data related to all of the metrics and subsequent results outlined in your commission plan.
When you build plans using an automated incentive compensation management platform, you’re able to give reps real-time insights into their plans and the results they’re generating. Rather than wait for a dense spreadsheet, they’ll be able to visualize their plans in intuitive dashboards and see their commission earnings generated in real-time. This will mitigate confusion, increase transparency, and provide ongoing motivation as sales reps continue to hit their targets.
4. Your commission plan should protect against detrimental sales activities
You design a commission plan so you can influence positive sales behaviors, motivating sellers to perform the activities that help the business succeed. Your plan must also do the opposite; it needs to protect the business against sales activities that hurt the company in the long run.
Here’s an example: Let’s say your company offers a subscription-based platform. Your sales reps are bringing in a lot of deals and earning the company a lot of revenue upfront – but over time, it becomes clear that a high percentage of these customers are churning within three months. In other words, they likely were never a good fit for the product.
How do you avoid this scenario without overcomplicating your commission plans? One method is to include a basic three-month clawback clause. If a customer churns within three months, the sales rep who closed the deal must return the commission they earned. This straightforward stipulation will help you motivate sellers to pursue high-quality prospects rather than embrace a detrimental quantity-over-quality selling approach.
5. Your commission plan should be flexible
When you build a commission plan, you’re not creating a final product that you’ll set and forget. A plan that’s effective today can quickly become ineffective when your goals and priorities change – which happens often for most businesses.
As you build a plan, consider whether or not your comp planning process enables you to change details and add or remove elements of the plan. For example, if you’re building a plan with a basic tiered commission structure, what happens if you need to add a new tier later on? Be wary of implementing any plan element that your process won’t enable you to easily change or build upon.
Once again, this strikes at the importance of your commission management platform. If you’re building plans in spreadsheets and tracking commission manually, any change you want to make is going to require hours of work that you may not have the bandwidth for. Leveraging an automated commission platform is the only way to build flexible plans that can adapt and grow alongside your business.
Start with the basics and improve your commission plans over time
Compensation management can seem incredibly complex and intimidating, especially if you have a large and multifaceted sales organization. But it’s critical that you begin with the key elements that make a plan effective – clear expectations, real-time data, and transparency. Once you’ve nailed the basics, you can monitor how your plans perform and add new elements as you gather more data and see more results.
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