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Avoiding Sales Compensation Obsolescence

Avoiding Sales Comp Obsolescence: What’s the Right Strategy for Sales Operations?

The overarching mission and primary focus of the corporate sales force are unlikely to ever change: generate profitable revenue. However, just about every other facet of and assumption about the modern sales force remains in a constant state of flux. Like the businesses they support, sales teams are witnessing sweeping changes. Sales is no longer an isolated team of bag-carrying pros chasing customers and quotas – it’s now an integral team player that must collaborate with customer service, finance, collections, HR, and more while the ground beneath them continues to shift: 

  • What’s a Territory? – Traditional geographical territories – an artifact of in-person sales calls and a need to control travel expenses –  are increasingly unimportant in the post-pandemic Zoom era and Millennials’ expectations of frictionless sales experiences. In response, many companies are broadening their focus to encompass the sales coverage provided by telesales teams, inside sales, major-account reps, product specialists, key partners, and much more.
  • What’s a Product? – The very idea of what constitutes a “product” is rapidly changing. Gone are the days of simply selling traditional goods and moving on to the next customer. Today, it’s about building long-term relationships and expanding the share-of-wallet to encompass services, bundled solutions, warranties, support, and more. That’s introducing large layers of process complexity that needs to be reflected in the comp plan.
  • What is Revenue? – Even the definition of revenue itself has broadened to include everything from initial upfront dollars to usage revenue, renewals, maintenance fees, and more.

These transformative changes to business models and sales fundamentals raise an important question: Is your sales-comp plan adapting and evolving at an equal tempo to stay aligned with changing business conditions? 

How Do You Stay Aligned?

Inertia can be a powerful force in any organization. A comp plan that’s based on “This is the way we’ve always done it” or “We’re just following industry best practices” suggests that the plan doesn’t undergo regular reviews and changes. Ensuring your comp plan remains aligned with the business – and avoids becoming obsolescent – requires careful and constant monitoring and evaluation.  

Well-structured sales comp plans are characterized by their ability to continuously coalesce around changing factors and metrics, including customer needs, product capabilities, competitive pressures, sales leadership, job requirements, accountability measurements, incentives – and, of course, revenue.

Review Job Content

A sales-comp plan is only as effective as the design and definition of the job roles it covers. To achieve and maintain alignment for your comp plan, you need the right people with the right qualifications in the right roles offering the right products to the right prospects at the right time and at the right price. That’s a lot of variables to cover – and it’s too easy to falter here. Job design errors are the No. 1 problem in the failure of a sales-comp plan. Confusing or vague job descriptions, overlapping roles, or ambiguous metrics and incentives inevitably lead to finger-pointing and blame games while your revenue initiatives stall. Regularly review the roles, descriptions, and responsibilities of all of the participants in your comp plan(s) to make sure they reflect and support your current (and changing) business strategies and goals.

Reward the Point of Persuasion

Ideally, a sales comp plan rewards the people who exercise the greatest influence over the sale at the crucial point of persuasion – where the greatest risk or uncertainty for  the prospect arises during the sales cycle. Traditionally, that’s most frequently seen during the purchase commitment phase and is handled by the sales rep. But we’re increasingly seeing other participants from other disciplines who merit equal or greater inclusion in the comp plan. 

In demand creation, the marketing team uses multi-faceted campaigns to generate demand for products and services. Inside sales teams can identify higher-value prospects and escalate them for faster engagement. Order fulfillment and customer teams play key post-sale roles that enhance brand value, reduce churn, and increase the likelihood of repeat sales. All of these – and more – merit thoughtful inclusion in any incentive-compensation framework. 

Reinforce the Messages

Corporate executives and sales leaders play a crucial role in the success of a comp plan by continually and consistently communicating the goals they are setting for everyone in the organization. Explain clearly and transparently why you’re seeking desired behaviors (e.g. “We’re launching a new product this quarter and want it to generate 20% of all revenue – so we’re adding a SPIF to all sales of the product that surpass 75% of your quota.”) to get buy-in and reduce confusion. Report each individual’s performance and scoreboard results quickly and regularly so that you achieve the motivations and activities your plan is designed to encourage.

Communication from your leadership helps keep the plan aligned with goals and strategies that are shifting. But it also creates a healthy culture that is equally essential. A win-at-all-costs culture can have long-term negative consequences, as we’ve seen from numerous high-profile examples (think: Enron or Wells Fargo Bank).

Resist the Distractions

There’s an inherent tension that comes along with any successful sales-comp plan – and that tension can ramp up exponentially during periods of rapid change. 

  • Executives can become restless if incentive-comp expenses are rising while the company performs below objectives and expectations. This suggests you have an obsolescent plan and urgently need to redesign it to regain alignment.
  • Product managers want the sales team to focus more on their products. But are they meeting their own responsibilities to deliver products, messages, and strategies to the sales force that enable them to target those buyers? 
  • Sales reps, of course, perennially complain about the difficulty of attaining quotas and other goals. But in a proper sales-comp plan, not everyone will reach their quota – nor should they. You want to set goals that stretch their performance, not simply provide “participation trophies.” 
  • Finance and sales operations both grumble about the cost to administer sales compensation. If they’re using outdated tools such as fragile spreadsheets, the time and cost can be disproportionately high. This likely represents an opportunity to deploy automated solutions that improve productivity and accuracy and enable companies to adjust comp plans “at the speed of business” to create greater business agility.

Don’t let your sales-comp plans gradually (and sometimes silently) slide into obsolescence. Continually reassess the relationship between your incentivized activities and corporate goals. Are we missing any particular pitfalls that you’ve encountered? Share your thoughts in the comments below.

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