The Coaching Effect Blog

How to Give Your Sales Team an Olympic Edge

Posted by Kristi Shoemaker

April 8, 2011

 

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Topics: EcSELL Institute Partner, Emotional Intelligence, Sales Coaching Summit, sales coaching, sales performance

Sales Management Lesson from Google

Posted by Bill Eckstrom

March 16, 2011

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Topics: Sales manager training, Engagement, sales leadership, sales coaching, professional development for sales management, Leadership & Management, EcSELL Institute, Sales Management, sales management skills, coaching, professional development, assessment tools, sales performance, sales leadership best practices, ideas for sales leaders

Sales Compensation Plans: Step 7, Commission & Bonus Structure

Posted by Jaime Davis-Thomas

September 24, 2010

Sales Compensation Plans: Step 7, Commission & Bonus Structure

Guest Article for the EcSELL Institute by Bob Malandruccolo

The seventh step is determining whether the plan should be based on Commission or Bonus or both. These are some common principles for a commission and a bonus plan.

A commission plan is paid based on a percentage of sales results such as 2% of sales or a payment per unit such as $.05 per unit sold. Some common considerations: If you cannot set goals at the sales rep level, a commission plan is usually appropriate. If territories are relatively balanced, meaning all territories have similar opportunity to earn, commission is usually appropriate. If you have a high number of customers, such as in the thousands, and a short selling cycle, such as less than 90 days, commission is usually appropriate. 
 
On the other side, a bonus plan is paid as a percentage of a sales quota or a specific objective. Some common considerations of a bonus plan: If you can establish goals at the sales rep level, bonus is usually appropriate. If territories are not balanced, a bonus is more appropriate compared to a commission plan. If there is less number of customers, such as less than a hundred, and the selling cycle is long, such as greater than 90 days, a bonus is usually appropriate.
 
I have a client that struggled with an existing bonus. The issue about the plan was that it was not fair for sales reps that had large books of business. We developed a bonus up to 100% quota and a commission plan above 100% quota. In this case, overachievement allowed a closer correlation between pay and performance. That is an example of a combination of commission and bonus. 
 

 

If you select a bonus, this describes the three different types of bonus plans.
 
You could use a standard bonus. That means that every sales rep in the same role would have the same sales goal or quota. This would be appropriate if all assignments or territories have similar opportunity to earn at similar levels.
 
You could use individual quotas if assignments or territories are different in terms of earning levels.
 
You could use Management by Objectives (MBOs). MBOs would be used for long sales cycles and augment other results-based measures. The caution around MBOs is that they could turn into entitlements. One of my clients used MBOs to provide pay for sales reps that were not achieving their goals. If you are using MBOs, follow S.M.A.R.T. guidelines. Make sure that they are Specific, Measurable, Attainable, Realistic and Timely.

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The first step is defining the Sales Compensation Philosophy. It is developed by the Steering Committee and the philosophy guides the Design Team during the design process.  

Step 2 is determining which Eligible Roles are included for sales compensation treatment.  

Step 3 is selecting the Total Target Pay Level for each sales role. This represents the mid-point pay level for target performance.  

Step 4 is determining what the Pay Mix should be for each sales role. Pay mix is the ratio between base salary and incentive pay at target performance. 

Step 5 is choosing the amount of Upside of incentive pay for high performers.  

Step 6 is selecting Weights & Measures that are linked to incentives for the plan.  

Step 7 is determining whether the plan should be based on Commission or Bonus or both.  

Watch for Steps 8-10 in up coming Sales Leadership Blog posts.

Step 8 is defining the Structure Details of the plan including threshold and excellence levels and the payout curve.  

Step 9 is choosing the Frequency of Payouts for each measure.  

And finally, Step 10 is determining the Administrative Details included in the plan. 

Learn more about the Compensation/Recognition/Rewards Pillar

 

About EcSELL Institute

We provide professional development resources and educational events specific to sales management.  The EcSELL Institute is an exclusive membership community of Sales Managers who share best practices, research, and fact-based information on a perpetual basis in order to help each other find new and better ways to maximize the performance of their teams. All EcSELL Institute members have a commonality; improve how they lead, coach, and manage sales teams, hence driving more revenue for their company.

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Bob Malandruccolo is the founder and principal owner of Sales Force Effectiveness Consulting. With over twenty-five years of practical business, management and consulting experience in sales and marketing, Bob has worked with a broad range of clients from Fortune 100 corporations to small, closely-held firms with special emphasis on sales and marketing process implementation. He has worked closely with his clients through hundreds of successful engagements and implementations across multiple industries (manufacturing, engineering, distribution, software, healthcare insurance, medical products, healthcare, automotive, telecommunications, retail, information handling, media).

 
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Topics: Best Practice, compensation recognition rewards, sales results, sales compensation plans, Sales Management, sales performance, 6 Pillars of Sales Productivity

Sales Compensation Plans, Step 6: Weights & Measures

Posted by Jaime Davis-Thomas

September 20, 2010

Sales Compensation Plans, Step 6: Weights & Measures

Guest Article written for the EcSELL Institute by Bob Malandruccolo

The sixth step in designing a Sales Compensation Plan is selecting weights and measures that are linked to incentives for the plan. Many believe that this is the most important step in the sales compensation design process. It is important, that is for sure. Here are some common principles concerning selecting measures and weightings. 
 
Ensure that the measures are reliable, accurate and are based on results. This seems simple but I have seen companies that want to use measures that have not been tracked or reported. For example, one of my client's Steering Committee wanted margin as a measure in the sales compensation plan. So, I asked for historical data at the account level and the sales rep level and I found out that it could not be measured at that level. In fact, margin could only be measured at the regional level. We'll talk about regional measures in a moment. 
 
The next common principle is alignment with company goals. Oftentimes the challenge is to select the right measure at the sales rep level.
 
The next common principle is "line of sight". For a sales rep, the line of sight is their specific assignment and accounts. For a sales manager, it would be his or her direct reports. A regional manager's line of sight would be regional measures, and so on. So would a regional measure be appropriate for a sales rep? Well, it would fail the line of sight principle. But once again, in a moment we'll talk about if a regional measure could be appropriate. 
 
The next common principle is no more than 3 measures in the sales compensation plan. The reason for this principle is to focus on the role and not dilute incentive dollars across multiple measures. One of my clients had 17 different measures and quotas in the sales compensation plan. I called that sliver measures. Several of the measures paid out less that 1% of the total target incentive. Do you believe that the sales reps spent very much time on those measures? No way. Well, I can tell you that less than 1% of the total target incentive is not motivational either. I was able to get my client to reduce 17 measures into 3. 
 
The last common principle is if you have 2 or 3 measures, weight the measures based on importance. Once again, that is intuitive. So going back to needing a margin measure but it's only tracked at the regional level. Well, you could use a regional measure for the sales force, but weight it at a smaller percentage such as 15% compared to individual measures. However, my perspective is to use individual measures and adhere to the line of sight principle.
 
The following is a list of common measures: sales, margin, product mix, new accounts, line of business expansion and sales process milestones for long sales cycles. What do you think is the most common measure for sales compensation plans? Yes, it is sales. It is easy to measure sales since companies are already billing clients anyway. From my perspective, try to get margin at the account level. Product mix adds complexity into plans and could violate the simple philosophy plank. New accounts could run into gaming. What is the definition of a new account? What about a new division in the same account, etc.? Sales process milestones could violate the principle of a results measure, but for long sales cycles, this type of measure could augment the challenge of long sales results.

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Topics: sales producer, Best Practice, compensation recognition rewards, front line sales managers, Sales Management, sales performance, 6 Pillars of Sales Productivity

10 Steps of Sales Compensation Planning

Posted by Jaime Davis-Thomas

September 3, 2010

10 Steps of Sales Compensation Planning

Guest Article by Bob Malandruccolo

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Topics: sales producer, Best Practice, sales planning, compensation recognition rewards, sales analytics & performance tracking, Sales Management, Resources for sales managers, sales performance

3 Most Important Words for Sales Success

Posted by Jaime Davis-Thomas

August 24, 2010

3 Most Important Words for Sales Success

Guest Author, Paul McCord

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Topics: sales producer, sales planning, Planning, sales results, Sales Management, Wisdom, sales performance, time management

Sales Performance & Productivity Leak Solutions For Sales Managers

Posted by Kristi Shoemaker

July 23, 2010

Posted by: Kristi Shoemaker, VP Marketing, EcSELL Institute

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Topics: sales results, sales coaching, sales rep peformance, Resources for sales managers, sales performance

10 Golden Rules of Sales Force Productivity

Posted by Jaime Davis-Thomas

June 22, 2010

Ellen Bristol, Bristol Strategy GroupGuest Article by Ellen Bristol, Bristol Strategy Group

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Topics: EcSELL Institute Partner, Planning, Customer Service, sales analytics & performance tracking, sales rep peformance, Pillars, Sales Management, sales performance, 6 Pillars of Sales Productivity, time management, sales methodology & sales skills development

5 Sales Coaching Sessions That Help Sales Reps Grow

Posted by Kristi Shoemaker

May 24, 2010

Posted by: Kristi Shoemaker, Marketing, EcSELL Institute 

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Topics: Best Practice, Sales manager training, sales management webinar, sales rep peformance, sales performance, time management

Strategic Sales Planning Retreats

Posted by Bill Eckstrom

May 13, 2010

   EcSELL's fiscal year begins July 1 and it is time for us to get out of the office and spend a day envisioning and mapping our future.  By the way--every team leader, Sales Manager, Sales Executive, etc., should sit down with their respective team a minimum of annually and plan the following year. 

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Topics: Best Practice, sales planning, Planning, goals, Teamwork, sales coaching, Leadership & Management, EcSELL Institute, Sales Management, sales management skills, collaboration, collaboration, coaching, Resources for sales managers, sales performance

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