Editor's Note: This guest post from Bob Malandruccolo has been updated for accuracy and comprehensiveness on June 18, 2020.
Sales compensation programming seems to be on everybody's mind this time of year, and for good reason. Your upcoming plans should be in the final stages. Developing, refining and redoing compensation, put simply, is tricky. Here are a few best practices I learned while in Sr. Sales Management roles. Research shows that cash is still king as a reward for top performance with 89% listing it as the #1 reward, regardless of age and tenure.
For hunters (those that obtain new business), keep base low and commissions high. Put as much income at risk as your market will bear and do not limit their income. The true hunters in your organization will gravitate towards this plan and the farmers will weed themselves out. My experience tells me to weight the plan disproportionately to those who exceed goal by increasing commissions when producers hit their number.
If your business is built on recurring revenue, don't be afraid to bonus sales reps on the book of business historically created by that sales rep. A few times I've heard negative comments on this pay structure with words such as "fat cats don't hunt", but keep in mind the challenge is not with the structure, but how and when you pay. Do not pay a bonus or commission on an existing book of business unless new sales goals are met. This can lead to greater sales rep retention and an increased ownership mentality of your accounts. This also forces your reps to take a longer term view of their respective territory.
Sounds simple, but make sure your incentives are aligned with your objectives. For example, if your objective is to increase the penetration of existing accounts, make sure your comp plan pays a disproportionate amount to have reps do this. If you need to change your comp program to accomplish this, change it! More than 50% of businesses researched change their comp programs annually, and they need to change if their method of attaining objectives changes.
Also should note, none of my above best practices assumes you pay more money, it is just reallocated to allow top producers a greater ability to earn. Outside of compensation, take into account other recognitions and rewards that are pleasing and motivational (too much to cover in a blog) to your sales team.
Thanks to EcSell's partner, Dr. David Brookmire, along with others for sharing their data.