It’s not uncommon today to get into deep conversations about sales compensation. Typically, it’s a business owner looking to refocus and energize their sales team and to drive the best possible behavior and thus sales results. Compensation is a serious topic for serious reasons. Mess with it too often and you’ll clear the house, don’t mess with it enough and you’re probably giving away too much money and your growth numbers (net new accounts) are probably suffering.
There are so many conversations going on about compensation. “Am I paying out too much?” “Am I paying enough to attract sales talent?” The emotions, rules and even laws around compensation make this a very challenging topic to deal with.
I hear a lot of “If it ain’t broke don’t fix it!” but what usually comes along with that statement is a business that’s behind the times, including their market strategy and yes, their sales comp program. The cold hard facts are, our industry is changing and in order to remain a leader in your marketplace you have to change with it. So drive a sales compensation that empowers your future.
Let’s face it; if you don’t know what you want (your key business objectives) and you’re not sure what your market wants (market strategy) then it really doesn’t matter what sales comp plan you implement. But when you get it right and it’s aligning performance and activity to your destination, it becomes a propellant that drives your company.
Many owners express fear when I recommend a change in their sales comp plan, mostly because it’s so hard to get things operating smoothly. One business owner told me that there are very few smooth moments within a month that they just stopped expecting them. Some report, “we’ve tried to change it in the past, but we had a mutiny on our hands!” Every situation is different; however, if they don’t know your business objectives and market strategy, they’ll have no reason to understand the comp change.
Our industry is one of the most dynamic industries in the world. Think of it, we help millions of businesses operate everyday with the technology we sell. What you sold even five years ago has changed drastically, so changing compensation is just part of it. You’re not the cause of the change; you’re just trying to remain relevant and competitive.
I’ve heard, “We’re not selling a lot of MPS!” or “We get in a deal so far and then we bail and it becomes a hardware sale!” Both of these could be caused by a sales comp misalignment. Your sales compensation isn’t just a way to pay your sales team, it’s part of your marketing execution plan; it ties action and direction to your key business objectives and market strategy. It can get especially challenging when a hardware company tries to move into managed services or include software sales. Without allowing your comp plan to assist you in the change, it’s probable you won’t make the transition successfully. Sales compensation should be as standardized as possible, all for one and one for all.
I have found within a single company as many as 8 different comp plans at work at the same time. Talk about a nightmare. This is typically caused by the lack of foundational planning on behalf of the business owner or leadership. There is nothing wrong with different comp plans for different deliverables, but different comp plans for reps all selling the exact same deliverable? Unmanageable! If you’re paying more money or higher percentages to some, this will be discovered and drive dissention in the ranks and may result in undesired consequences.
This can happen in the recruiting process, when an inbound candidate negotiates their way through your comp to make it more favorable. Obviously if you scored the right person it may be worth the headache; however, I’ve seen this a thousand times where a negotiation to pay higher commission creates a monster. A rep who can live on your base and a few sales is not what you want to create. Creating high activity and momentum drives the highest ROI for your company. Slow creates slower and when your “higher talented” reps are not at the front of the pack raising the bar, where do you think the others will be?
Sales compensation isn’t a toy to play with, it’s a tool that helps guide your sales organization to the direction and behavior that best serves your company’s future.
As powerful as a great comp plan can be, it seems that there are some folks that you simply cannot please. Not in every company, but in many, there seems to be confusion sometimes on who works for whom. Letting things get to this point is a mistake. Often I find that the sales team has control of the company and the pace of sales. They live in the lease renewals and the company is just a vehicle for the sales team to drive their income. Trying to change the comp in this environment is amazingly difficult and you’ll probably lose those who have only been using you as a cash cow.
The good news is, if they were living in your renewals you certainly can renew your own leases (most of them anyway).
This leads us to the talent side of our conversation. Certainly you’ve heard the old saying, “What came first, the chicken or the egg?” This applies directly to our hiring success. Designing a sales team model that will get the job done is so very important. Is it the comp plan that attracts the talent or is it talent that requires a great comp plan? And it’s not about hiring a lot of people; it’s about putting together a sales team strategy and attracting the right talent with the right comp plan.
With any candidate you’re about to hire, it is a great point of conversation to share AT THAT POINT, “We review our comp plans every year and modify them AS NEEDED to accommodate the new products, services or market strategies.” I would go as far as dropping that into your hiring or employee handbook and provide a place for them to initial that they understand.
Trying to motivate sales reps that will never adapt is like putting a new motor on a sunken boat—it’s not going anywhere. You have to build a comp that will attract the right talent and the right talent should understand how the compensation can help them make a lot of money. The right candidate is probably looking for higher income opportunities over a strong base. But remember your thoughts of a strong base are always less than theirs it seems.
Most importantly your comp plan must be REAL. I see people throw out numbers that came from Mars and then an unknowing candidate jumps into failure the day he joins your company. There are a lot of practices out there like hiring an experienced sales professional or hiring inexperienced talent and training them. There can be problems with both sides of those practices. If you hire inexperienced talent and decide to train and nurture them, you have to have a training and nurturing program. Do you have one? If you hire the experienced sales professional, you realize they do have some baggage, good and bad and hopefully you hired someone with a proven SUCCESSFUL track record that you validated. Someone who can sell the C-suite solutions our industry is requiring.
What you should always do with your existing team and/or new hire candidate is show them a 3 year view of their comp and quota requirements so they understand your long term expectations for year two and three. One of the most negative comments I hear in our sales rep surveys is, “My employer keeps raising my number every year.” A great market strategy is always going to include growth calculations; however, many business owners look at yearly budgets and forget to share the long-term requirements with their sales team.
As I said earlier, sales compensation is a tool, it has to demonstrate a path for successful income or you’ll never attract the higher talent. It should show the same new business mix requirements that your company needs. Share more commission for growth and less for renewals and both of those are impacted positively or negatively based on quota attainment. The salary you provide should assure you that you have control of the daily activity and expectations of your sales team. You should be able to request and expect the normal and necessary sales activity that every company would require to grow their sales funnel.
They say that a great sales rep is one in ten thousand! They’re out there, and your comp plan, if it’s right, can attract them. This is important! They’re probably employed and you’ll need a technical sales recruiter to find them!
If you think that your salaries and commissions won’t compete, here’s a process for affording the talent you need. Let the 3 or 4 underperformers you employ go and use their funds to design and attract the right talent. It will only have a positive impact on your company immediately. Let the recruiter review and share their thoughts about the quality of your comp plan. They get to see hundreds of benefit packages every month and work in your marketplace. So help them help you! Make any reasonable adjustments they suggest that align with your plan.
So what is the right sales compensation? Let’s just look at the marketplace today. With managed services being a C-Suite deliverable (mostly) you’ll have to afford a sales rep with the talent to perform at that level. That type of talent is going to want to make six figures plus and will want to build some type of residual commission. With services, you really can’t base their comp on equipment profit so you have to create a comp plan that’s based on the value or profitability of your contract. Just like equipment, services generate profit; all you have to do is design a comp plan around the profit of longer-term contracts and reward your sales team for bringing them in. I certainly have examples I could share.
A mediocre comp plan plus a mediocre sales team delivers mediocre results, plain and simple. You don’t have to ride in a boat that’s sinking. Patch the holes, put a new motor on it and grab the rudder and point it where you want it to go!
