In companies that implement strategic changes, wise business leaders often ask Sales & HR Managers the question : do our sales force pay plans support our new strategy?
Consider your growth stage
It should be if the choice of performance measures for the different sales positions is properly aligned with the Company’s strategic goals. Overall goals depend on the specificity of the business plan which is linked to the Company’s stage of growth.
During a rapid growth stage, if the business priority is to increase the market share, the salesforce commission plans should both push the hunter Field Sales Rep towards the most attractive new customers selling them as much as possible new products and help the Key Account farmer keeping better retention rates than other competitors.
In a maturity phase of development, the first overall objective is often to maximize the profit and the incentive plan should ensure that the farming sales force will focus on margin rather than revenue. Therefore, doubling the standard commission rate for selling higher margin products makes sense as well as halving it in a case of excessive discount.
If demand in your industry is lumpy and cyclical with an upward trend, it is a critical choice to size properly your sales force investment. Each time the business outlook brightens again, you should hire new good sales reps before your competitors. But can your Company grow again with its current sales compensation plan? To attract and retain the best sales persons in a growth phase, you perhaps shall need to aggressively increase your compensation offer over the market, at least toward high performers who usually prefer pay plans providing exceptional earnings opportunities for outstanding new-business performance. On the contrary, during decline phase, you will need a pay plan that helps you penalize or eliminate the lower performers among your sales force. Maintain also control of the sales cost with an appropriate mix of incentive commission rates, trigger thresholds, reward curve and caps.
Test different metrics Among all the choices in terms of sales force pay plan design, group or individual incentives, short or long quotas, qualitative or quantitative measures may equally affect your chance of achieving your strategic goals.
For example, in a traditional restaurant, any customer can see, hear, touch, smell or taste the group performance through the combined work of hostesses, waiters, sommelier, barista, dishwashers, cooks, chef or cleaning agents. And performance also depends on the organization and the solidarity between the crew members in the dining room. Therefore, a mix of collective and individual sales incentives is the best choice in most restaurants of this kind: team bonus based on customer’s satisfaction for the welcoming and serving staff and individual commission based on the revenue per waiter.
If customers’ loyalty is a key success factor in your business, for instance, online banking, pay TV or office sharing, pick long quotas, annually or half-yearly rather than monthly for metrics like the churn rate per customer portfolio or sales area, could be wise.
In the same way, it seems reasonable to include middle term revenue targets connected to the strategic plan in the Sales Manager’s incentive plan of a turnkey projects contractor, industry in which the sales cycle is very long.
Where the respect of the earlier stages of the sales cycle are fundamental to achieve the revenue goals, qualitative metrics are equally important, especially for the new hunter sales person’s variable pay: qualification rates, speed to contact the leads or forecast accuracy.
Communication matters
Another key-success step is to improve transparency and information flow: do not underestimate the communication of your new aligned sales incentive plan in the different design, rollout and evaluation steps :
- Show what is the most important strategic goal, explain why and how you change the plan, indicate which are Sales Reps’ desired behaviors and performance will help you to sell them the plan;
- Provide your sales persons with a calculation tool that helps them understand how much they can earn following the assumptions of target achievement rate;
- Answer each salesperson’s question and update the FAQ
- Schedule monthly, quarterly and year-end performance and pay reports to recognize best performers, to share best practices that could increase midperformers’ results, and to assess how effective the sales pay plan is in supporting the strategy.
Formulate the strategic management process
The last tips to align salesforce pay plans and strategy relate to the Company’s strategic management process.
The alignment of salesforce programs and pay plans with strategy will be easier if the business leader can provide to the managers his/her detailed strategy formulation (See Fig. 1).
Sales & Marketing managers will implement the strategy through a set of programs, budgets and procedures which are not all about the salesforce pay plan but should be mutually consistent.
Evaluate yearly the consistency and the good alignment of your sales compensation plans, programs and procedures will help you to achieve the overall objectives.