Good sales leaders are always on the hunt to bring in new talent that can help a business grow. Still, they don’t always nail down the details when it comes to the things that might entice a prospective salesperson — like a well-rounded sales compensation plan, for example. Creating a strong sales incentives program will help you attract and retain A-list sales talent, so it is worth putting in the legwork to create a strong plan.
While it can be daunting to create such a plan, be kind to your future self. Bringing salespeople in for an interview before you’ve figured out exactly how you’ll compensate them for their work leaves you in a tongue-tied, unenviable position when eager candidates ask about things like quotas, sales incentives, what data you use to set goals, and how often your team exceeds those goals.
So why do sales leaders overlook something as important as a sales incentives program? To put it simply: because it’s complicated.
Think about the compensation structure of various sales roles. “Hunters” typically have salaries tied to revenue; “farmers” usually get compensated based on renewal percentages; “prospectors” might receive pay for setting up qualified meetings.
In each case, determining the pay mix ratio — whether it’s completely variable with no fixed salary, a 60/40 split between the two (the average mix for salespeople in the U.S.), or some other proportion — depends on a variety of industry factors. What works well at one company might not work at another.
No matter what kind of sales guru you want to woo, you must create a robust mix of sales incentives that balance the wants and needs of the salesperson you’re trying to hire and your company. Consequently, the plan must be achievable (though not a cakewalk), easy to understand, competitive, and uncapped.
As you can imagine, that’s a tough sell, especially when you’re at a startup or entering new markets. However, attracting A-listers who are ready to hit the ground running will ultimately drive your success moving forward, and a clear, attractive compensation model is the best way to lure them in.
Creating a Winning Sales Incentives Program
Even if you already have a sales compensation package, consider the following eight questions to refine your offering. Thinking through these will help you build the right program to set your salespeople up for success.
1. What type of results do we want to achieve?
You want your compensation plan, including your sales incentives, to be aligned with your goals as a company. I recently spoke with Bill Binch, currently the chief revenue officer of Pendo, a software company based in North Carolina. We talked about the sales strategy at a former company of his, and he told me how, at the beginning, company leaders knew their best bet to drive revenue was to upsell and cross-sell — getting as many customers as possible through the door in the first place was crucial. Consequently, compensation for hunters was entirely based on the number of customers signed, regardless of the revenue produced from that signing.
When considering the responses to this question, maintain compensation alignment between the sales leaders and representatives. A sales team compensated entirely on revenue shouldn’t have a leader whose compensation depends on something else.
If you already have a mix of compensation plans, adjust them. Nothing’s more demoralizing (not to mention bad for the business) than a leader motivated by goals that are antithetical to those of his or her team members.
2. What types of sales behavior do we want to drive?
True superstar sales representatives need specific, realistic goals to drive their work. If it takes 100 calls per day to set one qualified meeting and the representative’s ultimate goal is three qualified meetings daily, he or she is unlikely to meet that goal. As a result, he or she will quickly lose faith that the compensation plan is viable, and his or her motivation will tank.
For an early-stage company, in particular, it’s important for the executive team to have demonstrated some semblance of product-market fit and sales success before bringing in outside help.
Our CEO and I sold the first deals at our company, Node. Why? We couldn’t hire sales help and expect them to succeed until we had demonstrated viability and could afford a reasonable salary and compensation package, including desirable sales incentives. This also allowed us to adequately use data to defend the quota targets that we set for the team.
3. What is the going rate for companies like ours?
No two companies are the same, but that doesn’t mean each is completely unique. Big companies tend to pay more than smaller ones; enterprise roles tend to offer larger compensation packages than roles at small to mid-sized businesses. When designing a compensation plan, see whether you can find out what kind of competition you’re up against.
Not sure where to look? Check out The Bridge Group’s latest report. There, you’ll find detailed information on sales compensation across industries, geographies, roles, and more. Glassdoor is another platform worth perusing, though it can be difficult to determine total compensation numbers versus salary-only figures.
4. What are our constraints?
Even companies with deep pockets have financial, structural, and operational restrictions that limit what they should offer sales professionals. For instance, a company with a product that practically sells itself already might pay low salaries while a company entering an uncertain new market might opt for higher salaries to attract game-changing talent.
Generally, if you pay a higher percentage of compensation as a commission or have higher-variance sales, you should pay variable compensation on the most regular schedule that your company can support. When I worked in Cisco’s global enterprise sales, our sales cycles could be up to a year. As a result, our quota cycles were annualized but paid out monthly (and occasionally in advance).
5. How can we manage payment logistics?
Your compensation package could be the best in the world, but if you can’t pay your people on time, you’ll lose them. After determining a feasible logistics set-up, codify your discoveries into a handbook that everyone on the team can access.
Our company has a variable compensation handbook that outlines everything from what counts as an eligible qualified meeting to how arbitration works if disputes arise. As you might guess, our guide was created in tandem with Node’s legal and financial teams to close gaps. All sales employees must read and sign off on this “playbook” before coming aboard.
6. What other sales incentives will we offer besides cash?
Sure, salespeople are generally motivated by money, but not always. In some cases, sales employees willingly take pay cuts to join disruptive startups or in return for career acceleration and learning opportunities. About 60 percent of organizations now offer non-cash incentives to employees.
As a sales leader, you must be honest with yourself and your representatives regarding what you can provide today and in the future. Our first in-house sales development representative was pursued by other companies but chose us because we offered a competitive compensation plan buoyed by a timeline with clear success criteria for moving up the corporate ladder.
7. How can our compensation plan be gamed?
Top salespeople are brilliant strategists. As such, expect them to find loopholes in your compensation plan so they can reap earnings without achieving the desired results.
Your job is to outwit your most cunning tacticians by looking for breaks in your plan. After exploring the plan on your own, present the package to someone you can trust from outside the company. You’ll get a fresh perspective and probably find some previously uncovered gaps that can be exploited or might lead to undesirable behavior.
8. What does my team think of the plan?
Before hitting “go” with any compensation package, solicit feedback from the front lines. Talk to your best salespeople and take their input seriously. You don’t have to change everything; no doubt many sales employees will attempt to add something that’s advantageous to their position but not to the company overall. Still, getting the lay of the land before rollout helps you avoid major blind spots and earn buy-in from the team.
Personally, I arrange a compensation review plan quarterly. My team and I use this meeting to discuss improvement, which statistics say is linked to company loyalty and engagement.
Salespeople are the lifeblood of a company — they bring in the money that keeps everything else moving. Be sure you’re rewarding them for their positions while not unduly giving away your revenue. Striking this perfect balance might be challenging, but when you craft the right sales incentives program, you’ll have a team that’s motivated, satisfied, and productive.
The Dos and Don’ts of Sales Incentive Plans
This is a sponsored guest post from a Sales Hacker partner.