In the post-recession economy, companies have had to re-think their business strategies in order to maintain their market position. As part of this evaluation, many are finding that they need to make changes in how members of the sales force are compensated. New products are making old ones obsolete, new sales channels are needed to reach new customers, and company goals are often shifting from increased growth to increased profitability. All of these affect how and what your sales force is selling.
If this sounds familiar, now is the time for you to look at how you compensate your sales people. Start by asking yourself the following questions:
Do I have the right strategic goals for the sales organization? Do they support our long-term business strategies in this fast moving industry?
Technology is driving cultural changes that are having a profound impact on the way business is done. For example, in some industries, organizations that in the past have focused on selling commodities are increasingly becoming providers of multi-media and marketing services to support their core products. In others, companies that have long focused on personal relationships are needing to establish new modes of communication through social media. Across the board, growing competition from Internet-based platforms and applications has empowered customers to demand more for less.
Most likely you have already determined how you will respond to these challenges and have updated your business strategies to accomplish that. But have you examined whether your goals for the sales force support those new strategies? Here are some things to think about:
· Have your new business strategies been communicated effectively throughout the organization? To be effective, your salespeople in particular need to fully understand how your business is changing.
· Do your new business strategies require a transition from individual performance goals to a more team-based approach to goal-setting? The transition from commodity sales to sales of multi-media services often means that sales people who have traditionally functioned independently must now function as part of a sales team.
· Have your new business strategies resulted in changes to the sales cycle? Short term incentives may have served you well in the past for commodity sales. But selling solutions rather than commodities often requires a longer sales cycle.
Am I incenting the right things?
Experienced sales people sometimes achieve a level of comfort and success selling the same products and services to the same customers. As a result, there may not be a focus on prospecting for new customers and this might be evident in a corresponding lack of new business. If your organization needs to expand its customer base and needs to sell a wider range of products and services, make sure your sales compensation plan is structured so that it does more than simply reward “more of the same.”
In addition, it is likely that certain products and services yield higher profit margins than others. Aligning your incentive elements to the profit margin of each product grouping is another way to incent the right things.
Do I have the right incentive mix?
The average pay mix for business-to-business sales representatives in the United States is 60-70% base pay/30-40% incentive. However, the range of mixes is wide and any approach can be successful. Commission-only plans are becoming less common because they often reward salespeople for selling anything to anyone and can be counterproductive in instances where deeper customer penetration and product focus is needed. Salary-only plans are rare, but can often be very effective for those in the account manager, inside sales and business development roles.
When thinking about this question, a general rule of thumb is that the mix of base/incentive pay varies with job content. The greater the level of autonomy and independence that the sales representative has, the higher the incentive portion of total compensation.
Do I have the infrastructure to support changes to my incentive plan?
Today, the options for sales compensation plan design are unlimited – including variable tiers, ramped payment schedules and residual payment formulas. If you are tempted to include some of these options in your plan, take a moment to think about what challenges the administration of a more complex plan may present. One of the most frequent complaints I hear about incentive plans is that they are too complex – the sales people don’t understand them and the staff can’t easily administer them. Make sure that your plan doesn’t fall into one of those traps as you prepare for success in the post-recession economy.
If your answers to the questions above indicate your compensation plan is not presently satisfying your business objectives, don’t worry – you are not alone and you can make the necessary changes. Just keep it simple and easy to administer, and above all make sure your sales people fully understand the company’s business goals and how the incentive plan fits in with them. If you do this, you will be well positioned for success in the years to come.
By Susan Palé, CCP, Executive Consultant, Contributor – Affinity HR Group
