I briefly worked in a telemarketing company a long time ago selling a well known mobile phone network’s products. Though there was a basic salary it was fairly obvious that the entire venture was target driven and if you didn’t achieve basic targets then your longevity in the job was not assured. Furthermore the incentives to sell way above targets were very attractive and the sales managers spent their entire time incentivising the workforce of phone operators to sell more, call more, get more – they were driven by targets themselves.

There was one issue with this business. Those that tended to stay the longest in the job and do well…were sometimes economical with the truth. That is to say, they were hungry for business – they knew when the person on the other end of the phone was interested and in some cases they would over sell or make promises that were not in their remit to deliver. In my short time there, I heard some real whoppers.

Obviously, this isn’t a great long-term approach to doing business. When customers who were mis-sold products complained they had to go through a lengthy and time consuming process of compensation which didn’t do the company very good. I get it though – this company was a short term business. Easy to re-locate, revamp, remarket and move into other areas of business. They could afford to move around doing the same thing – the danger was for the mobile phone network. Their brand was systematically getting tarnished by third part companies like this.

Now, don’t get me wrong. I like the idea of incentives and bonuses. It is nice to be recognised for bringing in more than you are required to do. Yet, it seems to me that we aren’t even over the last financial cataclysm in the banking sector, which might I add was driven by bonuses and commissions, and still we haven’t learned any lessons.

My colleague Anthony Iannarino is perfectly right to say that targets should be about personal development rather than a blanket statement of intent from the board room. I have always believed, perhaps a little altruistically, that the company is the sum of its parts, meaning that the quality of the company is reflected in the people that are working for it. In a time where people are losing jobs, there are plenty of people who would kill for the chance to work and contribute to a company. They don’t need incentives to give their all – they want the chance to contribute, to make a difference and to fulfil ambitions for reasons more than just financial. By making a job purely just about commissions and incentives businesses are setting their stall out to attract the wrong types of people.

We often say in sales that competing on price alone is a dangerous business. There has to be more value. Why then is it all right to have that attitude with those that work for you? Why has it got to be all about the commission?

Popularity: unranked [?]

At the end of each year, those in sales management will pull out their spreadsheets and work out the coming year’s goals and targets. If you are lucky, they will have left well enough alone with an unnecessarily cumbersome commission plan.

At some point, you will be given goals and targets and your commission structure. You’ve been through this exercise before, so you may give it a quick glance, bitch about how management doesn’t understand, and then file it away both literally and figuratively.  Managements plans and goals are rarely a source of motivation.

A Better Way

But there is another way. A better way. That way is to write your own targets, goals and commission plans.

What if instead of accepting management’s goals and targets, you set your own personal goals and targets?

What if instead of simply trying to meet the minimums that have been established, you instead wrote your own personal plan to meet your own goals?

What if instead of calculating your commissions based on their plan, you calculated your commissions based on your plan and targets?

How much more motivating is it to sit down and determine your own path, your own plan, and your own goals? The answer is that it is much more motivating. It’s also more fun and more professional.

The Voice That Only You Can Hear

Motivating you to reach your targets and goals is not your sales manager’s job. The real motivating voice for each of us is the voice that only we can hear. Planning to reach your goals and targets begins with the conversation you have with that voice.

It is critical that you have that conversation around your own personal goals, targets and compensation . . . it is far more important than the conversation you have with your sales manager.

Here are some questions to get you started with your own personal goals, targets and commissions. Let these questions guide your conversation and motivate you.

Five Questions: How To Reach Your Goals

Here are the five questions you need to ask during your personal goals and commissions planning:

1. Regardless of the goals and targets that were set out for me, what do I really want to accomplish with my sales year?

Too many people have the same sales year over and over again.

Even though you may work for a company, your goals and your ambitions in life are yours and yours alone. This includes your life in sales.

What you accomplish with your sales year can extend far beyond what your sales managements has in mind. What clients do you want to win? What areas of your performance do you want to improve? A year from now, how will you judge whether or not you had a successful year?

2. Regardless of the commission structure I have been presented with, how much am I going to make in commission?

Your organization may control the structure by which commissions are calculated, but you have total control over how you work within those calculations. Study your commission structure to make sure you understand what levers your company is trying to pull. Try to find out what results will lead to the greatest commissions. Use what you have learned in conjunction with your personal sales goals to write your own commission targets.

Don’t rely on your sales manager to do this for you. As a professional salesperson, it is your responsibility to know and understand the rules of the game. Then play the game within those rules.

3. In order to reach these goals, who would I have to be?

The Master Key to Sales Effectiveness is self discipline. Self discipline allows you to be the person that makes the better choices about what to do with their time.

Much of your effectiveness is determined by the choices you make. Do you choose to browse the Internet instead of prospecting? Do you choose to leave your email open all day, responding to every trivial email in real time? Do people describe you as someone with great water cooler knowledge like the latest sports scores or the latest results on American Idol? Or do they describe you as a disciplined, focused salesperson with results worth envying?

4. Based on my effectiveness now, what activity would I need to take on a daily and weekly basis to ensure that I can meet my personal goals and targets?

Based on your current results, how much time do you need to dedicate to the basic sales activities to reach your personal goals and commission plans? How much time do you need to prospect? How many prospects do you need in your pipeline? What does your average sale need to be?

Once you have answered these questions (and the ones you will ask yourself as you work through your plan), you can break these down into the daily and weekly activities you will need to take to remain on target. Will it be perfect? Absolutely not. Will it serve as a guide so that you can make the necessary adjustments? Absolutely.

5. Whose help will I need to enlist

Even though this is your plan, there are a people whose help you can enlist. Do you need your sales manager’s help with resources? Do you need some of your team members help with subject matter expertise to influence a prospect? Do you need help from those around you in minimizing distractions? Ask for help from those who can help you reach your goals and targets.

Conclusion

In the end our successes and our failures have more to with what we believe and the actions we take than any external factor. Regardless of the goals and targets set for you, your personal and professional development are primarily your responsibility. Don’t simply accept the goals and targets that are given to you.

Where you end up at the end of the year is your responsibility. Chart your own course and make your destination your own!

Popularity: unranked [?]

When companies first hire sales staff abroad they do it because they want to make sales and open a new international market.  An obvious question is how to set up the right incentive plan to get their sales people to make more sales.

There is a temptation to propose a low salary with a juicy commission plan.  But when you are entering new foreign markets, this is not usually a good option if you are serious about developing your international business.

The main problem is that commissions are based on percentages and numbers.  When entering a new market it’s hard to come up with good numbers.

But that’s not all. There are a few things that come into play related to the international aspect of these sales. Here are two of the differences you need to take into account when coming up with a good compensation plan to drive sales performance in a new foreign market.

Your Sales Person Wears Many Hats

It’s true in all markets that salespeople where many hats, but when selling to new international markets your salesperson also has to adapt your sales and marketing tactics to a different culture.

Whether your salesperson is from the local market or is from your home country, he still goes through a period of adapting to being the connecting point between two different cultures.

Most companies find they need to adapt their original sales and marketing tactics when they first start selling in a new country.  There is almost always some adaptation needed to come up with a good sales strategy.

This takes time.

And it also takes teamwork with the home office.  This means he’ll spend more time wearing different hats than if he was selling to a market feedback cultural adaptation.

This takes up even more time.

And the trouble is: no one can really estimate just how much time this will take until you have been selling to your new international market for a while. You want to make sure you have the right person doing the job for you.

Cultural Differences In Compensation

Given that he already has so much to do, you have to make it easy for your salesperson to fit in well within his environment. Different cultures have different sales practices and you need to make sure your compensation plan works well to drive sales in this environment.

There are many different types of cultural blunders linked to expecting one sales compensation plan that works in some countries to work well in other countries.  And it’s not only a question of knowing where bribes and where they are illegal.

• There are countries where commission-only based sales do not work well simply because the legal system does not make it an attractive or easy set up to work with.
• There are countries where not having a company car is not a good sign.
• In some countries payment of overtime is expected and in other countries there is a certain level of tolerance for non-payment.

Even if you think compensation information is between you and your salesperson, the other people he comes into contact with will probably notice any different practices.  This includes your potential clients.

And this is where funny things can start.  People from different cultures can make wrong assumptions that impact how your company is perceived.  Salespeople who earn big commissions because they are successful are usually proud to show this in North America for example.  But this is not the case in other countries.

Two Step Approach

You don’t want to create any cultural blunders when you first set up your compensation plans for the first salespeople you hire to open new international markets. This is why you will probably look at a two step approach. In the first step:

• Companies with little budget and only focusing on immediate sales will try a compensation plan based on large commissions or a commission-only plan… in markets where the legal system makes this easy to do.

• Companies focusing on sustained international business development will invest in a salesperson capable of wearing many hats and helping them adapt to a new market. They will probably pay him a fixed salary and maybe a smaller commission at the end of the year.

Once businesses become familiar with cultural differences in what works in driving more sales, they can evaluate how best to set commissions and sales targets for an all round win-win situation.

I’ve worked for a few North American companies setting up European offices to develop more European sales.  There was never a sophisticated commission plan to begin with and targets were only set as guidelines.

There was always a good level of flexibility in the first 2 years.  This was the average length of time needed for the North American home companies to learn about their new market, including how sales were made abroad and how to adapt to the differences.

But there were always weekly calls to a senior executive in the North American home office.  These weekly calls made it possible for North American management to stay current on all activities including actual sales results and expectations.

There is no best way to set up commission plans and targets for all new foreign sales offices.  You need to know the sales environment to learn what works best and this takes time.

Popularity: unranked [?]

Paying commission wisely is a big challenge for business owners and managers. Commission can either drive sales performance, or turn your sales team into a bowl of oatmeal. Designing a commission plan that drives sales performance isn’t as easy as it sounds. There’s a minefield there, and you have to navigate through it successfully to have a commission plan that works.

Here are nine thoughts about commission plans and compensation:

1. I hate the word “target.” I don’t like the word “plan” when used as a substitute for a job requirement. I even shy away from the word “goal.” These words sound too tentative. I had a target age of retirement at age 40. I planned to have $10,000,000 in the bank before I retired. I had a goal of buying a 10,000 square foot house. Yet, none of those things happened. So much for targets, plans, and goals. Did I mention I want to lose fifty pounds?

Why don’t you simply just say what you mean. How about “minimum acceptable revenue produced,” as in, “Derek, your MARP for 2010 is $1.2 million. Got it?”

2. Most commission plans are based upon a percent of something. But if the something is gray or unclear or inconsistent, the percentage amount will be gray or unclear or inconsistent. How can employees be clear and consistent in revenue production if you’re not clear and consistent in how they’re being paid? Clarity is king.

3. Don’t roll out a new compensation plan only to change it one month later because you had to rethink a bunch of stuff. Do your homework. Accurately predict your losses and other challenges that will arise with the new compensation plan. Plan ahead. Then implement it. No going back, no waffling, no negotiating – it is the new commission structure. If you must, review the plan annually and make whatever small tweaks are required.

4. Compensation plans should do the best job of compensating your best performers. It’s okay if your bottom 10% of sales performers quit every year because they’re not making enough money working within your commission plan. Hire a new group who won’t be in the bottom 10% the next year. Don’t worry about low performers. Do you really want them? Do you really need them? Make sure your structure compensates high performers.

5. No compensation plan will make every employee happy. Some won’t even make any employee happy. Do what you need to do to run your business. Compensation should drive performance. If it does that, you’re a winner.

6. Whenever an employee complains about your compensation plan and has a suggestion for you (“How about if we pay 12% instead of 10 %”), ask “What are you willing to give up to earn 12%?” They won’t have an answer. End of discussion.

7. Pay “super commission.” If your commission rate is, say, 8%, consider paying 9% once the salesperson meets their monthly sales requirement (or some other landmark), and only 7% commission when they don’t. That’s super commission, and better than paying everybody 8%.

8. Pay super-dooper commission. Add a bonus for making 10% over minimum expectations for annual sales production. That’s super-dooper. Use what you’re saving paying the low performers in #7 to pay your high performers (refer to #4).

9. It’s okay if salespeople make a lot of money…if they earn it. I’m amazed at the number of small and medium-sized businesses that believe, either consciously or unconsciously, that there should be a cap in salespersons’ commission earnings.

Sometimes it takes this form: New compensation plan is implemented > it works like it’s supposed to > the best sales reps make a lot of money > management thinks they made too much so lower how much reps can make the next year> high performers quit performing or leave the company. Let your plan work. It’s okay if salespeople make lots of money. Part of that money goes to you. What you want is lots of salespeople who make lots of money. That’s how you can make even more money.

Popularity: unranked [?]

My colleagues have been quite articulate in talking about a lot of the fundamentals in developing commission and compensation plans.  The plan needs to reinforce your strategies and priorities, the behaviors you expect from sales people, and other things. 

I have been the beneficiary and victim of bad incentive plans, and I have victimized sales people with bad incentive plans.  I thought I would tell a story about victimizing a team of sales professionals, creating chaos and disorder through a bad plan.

I was running the sales organization for a large high tech company.  We had very technical products, most of our sales people were electrical engineers and, to be honest, we were all a little nerdy.  I assembled a team of sales managers, a few sales people, my controller and a consultant, to design the incentive program.

I set some guidelines, I wanted people to be incented to a fast start for the year, I wanted to have balanced performance across several categories of products, I wanted to incent over quota accelerators, and a few other things.  They met for a few weeks, designed a program, simulated it to make sure it wouldn’t violate our budget, and presented the final commission plan to me.  Here it is:

Pretty cool!  (Remember we were an engineering oriented company.).  I looked at the equation, and gulped a little.  Some of it made sense, I saw the Fourier series and started to get a little confused, and I was really concerned about the imaginary numbers (the last set in the equation).  But I figured, it’s sales, there has to be an imaginary number or two in the calculation.

The team presented it to me, they had a 127 nice PowerPoint charts that showed me they had incorporated all the design parameters we wanted, that it would motivate the performance and behaviors we wanted and reinforced our key strategies for the year.  They convinced me it was the right commission plan.  I guess I was too embarassed to admit that I really didn’t understand it, so we published it at our sales kickoff meeting.  Always the cheerleader, I told them how fantastic it was, I went through the design principles, it only took me 57 charts to explain it.  I concluded with the mantra of all sales executives presenting the commission plan:  If you hit or exceed your numbers, you’ll make a lot of money!  Boy I wish I were on a plan as rich as this!  (Isn’t that kind of the obligatory statement we have to make?).

There was a little rumbling and complaining—but isn’t that a sales person’s job, we always have to complain about the new commission plan.  They went back to their territories and went on about their jobs.  After a few months, I started wondering, why aren’t we seeing the behaviors we wanted.  We had wanted a radical shift in what they were doing, but they seemed to be doing the same things they were doing before.  What was wrong?  Here we were 30% of the year had passed, and we weren’t getting the behaviors and focus we wanted.  The overall numbers were OK, but some of the key things we wanted them to be doing weren’t happening.

Well, it doesn’t take a PhD in Math to figure out what was wrong—-well, in hindsight, actually it did!  Maybe that was the problem.  We had made the commission plan so complex, the sales people didn’t know where they should spend their time.  As they saw potential opportunities and tried to make that calculation all of us do (What’s my ROI on investing in this opportunity?), they couldn’t figure it out.

Our error was the plan was way to complicated.  It wasn’t clear what they should be doing and where they should be investing their time.  They couldn’t look at each deal and say, “Am I doing want management wants me to do?  Am I selling what they want me to sell to the right people?  Am I investing my time in the right opportunities?  Will I get the return on my investment in this opportunity that gets me the commission I want.

Perhaps, this case was extreme, but it’s not unusual.  Too often, I see management putting in place plans to do everything–and they end up doing nothing.  We have to have absolute clarity about what we want our people to do.  We have to know how we want them to behave.  We have to translate the few critical things into a commission plan that is easy for them to understand.  As they look at an opportunity, they ought to be able to say, investing in this is what my management wants me to do and will get me the commissions I want.  People do what we measure them on and what we pay them on.  Are we incenting the right behaviors and is it so simple and crystal clear that people can easily execute it?

Write me if you want to know what we did to fix this mess!

Popularity: unranked [?]

The Problem.

Imagine this scenario:

You find the brightest, most-qualified people you know.  Over coffee you then tell them your idea for changing the world.  About 15 minutes into the discussion they  nod their head, and you swiftly jump on the opportunity to woo them with your wonder-punch of :

“How about you work for me almost for free.  I’ll beat you up while you work really hard.  And then when you do land some business, I am going to take most of it and leave you with a few points….”

And we then we stop and sit back expecting the all-star we are interviewing to jump out tof heir seat, throw their arms around our neck, and offer to sacrifice their first-born child to us as a “THANK YOU”…

<insert cricket sound here>

It kind of doesn’t really make sense does it?  It’s almost silly.  Here we are as accomplished business people without a clue how to inspire the very people who are tasked with inspiring growth.

Kind of like smacking the receptionist who passed you through to the chief executive.  You might get away with it once, but you end up making enemies with the person who could make you really successful.

Now, before you go and remind me that there is more than one side to the story, let me tell you that I agree.

In fact, I got so obsessed with the topic that I reached out to my buddy, Brett Arp, who managed hundreds of millions in sales and marketing compensation for Wyndham’s timeshare division, Wyndham Vacation Ownership.  (Tmeshare is a highly commission driven business where payouts can run 20% of revenues.) Brett’s worked with everything from 100% commission plans to 80% salary plans depending on the role in the organization.  I figured he would have the answer to some of my questions:

The Interview.

Daniel: Brett, you have seen it all.  Why is the sales comp system such a mess?

Brett Arp: Great question.  I think it really starts with the person developing the plan.  How well does this person understand the entire business, the goals of each department and how every variable will impact the comp plan.  For instance, how are the other people in the organization paid and does this plan align with their pay plan?  How will other departments or people impact the person’s performance?  Too many comp plans are developed in a vacuum and I think this is why they are doomed from the start.

Daniel: With most commissions being single digits and the company keeping 90% or more of the revenue generated by a sales rep why don’t more companies take the time time to get the pay plan right?  If I were getting a 10 to 1 payback, I think I would take the time to get it right.  What am I missing?

Brett Arp: From my experience, most sales comp plans are developed or heavily influenced by sales management.  If they are in sales management, most likely they’ve worked under multiple incentive plans over their career and they feel like this makes them an expert.  The other business leaders usually defer to the person’s experience and the plans get developed.  Unfortunately, being on an incentive plan does not make one an expert at developing plans.  Much of what I end up doing when I talk to folks about compensation plan is play devil’s advocate so management is aware of any plan weaknesses.  The goal is to develop a plan that drives certain behaviors while minimizing any unintended negative consequences.  Knowing the strengths and weaknesses of the plan will make everyone’s life simpler in the future.

Daniel: You know my thoughts about the “long term” relationships and building conversations that last a life time.  My experience with comp plans is that they work month-to-month rather than decade-by-decade (which is how long companies would really like to keep a customer).  Talk to me about that.  What’s the right balance?

Brett Arp: Wow, that is a tough question.  Honestly I would have to say the right balance depends on the priorities as laid down by the Senior Leadership Team.  For example, some companies live and die by their quarterly earnings so who am I to say that a comp plan focused on the short-term is wrong when it goes against their entire strategy.  That being said, it is my place to remind them that no matter how much they might want their sales people to develop long-term relationships with customers, most sales people are going to do exactly what their plan pays them to do and that is focus on this month and worry about next month when it comes around.

I keep using the word “most” when talking about sales people and it reminded me of another issue with comp plans.  The majority of the plans are developed based on the average payout when everyone is rolled up.  If you do not pay attention to how a plan is going to impact your superstars, you may just kill the golden goose.

Daniel: Let’s get personal.  Why in the past have I been made to feel guilty by HR when I make a big pay day?  Doesn’t that mean that I am keeping them employed?  Isn’t the company keeping 10x more than I am?

Brett Arp: Assuming the company set up a win-win plan, they are definitely making money when you make money.  A lot of stuff gets paid for with that other 90% but I’ve never understood complaining about how much someone makes on the plan that was given to them.  I think many times it is a jealousy factor as well as someone not truly understanding what it takes to make a sale.  I’m not sure you’ll ever get rid of the pettiness.  Any time I ever heard someone complain about how much a salesperson made, I would just remind them that we are always looking for good salespeople and they are more than welcome to apply for the job.  I’ve yet to have someone take me up on that offer.

Daniel: Call me crazy, but for me in the past it was more than just about the money.  I can sell anything in a big way.  In that way, I don’t want to feel like I am whoring myself out for people who don’t value my input.  What are your thoughts about ego and managing the relationship between high-performers and their executive managers who probably make less than they do?

Brett Arp: I really think it comes down to the corporate culture.  When I ran sales compensation for WVO, the CEO started out as a very successful sales rep and worked his way up through the company.  In that organization, Sales was well respected and always had a seat at the table.  In contrast, I have also worked at a company that was more engineering/product focused.  Sales was not thoroughly understood by management and it continually created problems.  I think the tone really starts at the top of the organization and if the comp plans are well thought out and aligned, then the executive managers will be hitting their bonus numbers too.

Daniel: Everyone wants to incentive cold, hard cash generation.  In my mind that is short sighted, because a lot of the most important parts of whale hunting are not directly tied to the apparent cash side of the deal.  How do I pay someone to consistently produce a memorable experience that will lead to lots of future revenue?

Brett Arp: I hate to keep harping on the same word but it comes back to alignment for me.  Whale hunting is definitely not a 1-man job so is the organization aligned to support this endeavor, both from a compensation standpoint as well as corporate culture.  It is pretty hard to create a positive memorable experience without the support of others.

And to be honest, I think a lot of companies steer away from long-term compensation because it is can be difficult to track.   But if you can track it and regularly report out on it, then long term incentive can be very powerful.

Daniel: You do a lot of consulting for big companies who are looking to get this right.  Can you share 2-3 key things that you always advise clients?  Maybe a few “golden rules” of compensating sales dudes?

Brett Arp: Sure.  One thing I would say is to not try to have the comp plan manage the person for you.  What are the 2 or 3 things max that you want the person focused on and are those variables in the salesperson’s power to impact?  And secondly, think through how your organization is aligned from a compensation standpoint and highlight where you are setting conflicting goals.  By the way, conflicting goals aren’t always a bad thing as long as you aware of what you are doing and why you are doing it.  The problem is most organizations aren’t aware they are doing it.

Daniel: Thanks, Brett…  These are some great answers!

My thoughts.

So I go back to where I started:

1. You expect your sales dudes to be selling your value, so give them a plan that makes them feel valuable.
2. Talk frankly about trading risk for higher commission.  High performers can assess the opportunity on their own.  If you are worth the risk, they will join you
3. Invest more than money in your sales guys.  Time, respect, and thoughtfulness are very important. (Remember: You couldn’t do what they are doing for you.  And unless you don’t care about them leaving at the worst possible time for you, you might want to start building a relationship…

This post is way too long already or I would spend more time sharing more thoughts about hiring and rewarding “high performers”.  Most executives think they want the guy who can “blow the doors off”; they just don’t know what they are getting into…

Having been a sales rep who working my way up to the CEO position, I understand the different business sides to compensation.  I have sat on both sides of the table.  Beyond the basics of percentages, time lines, and quotas you have to remember that this is really about a relationship.  It’s not about you “winning” as an executive.  And it’s not about you giving into the silly demands of a “has been” wonderboy sales exec.

High performers need empathy.  Is that in your comp plan?

Popularity: unranked [?]

Commissions are a very subjective thing, and for most sales people, a very personal thing, and rightfully so.  Sales is one of the last professions where your income is directly dependent on your abilities and the execution of those skills. In most cases, except in organizations where the sales force is unionized. (Talk about an oxymoron, have you ever seen two words that do not belong in the same sentence, union and sales.) 

The one thing that everyone seems to agree on is that the incentive plan should drive results. Of course, that assumes that you have the right plan in place.  After that, you get little agreement. 

There are the purists who say that incentives should only be paid for results; deal is closed, invoice issued, revenue realized, the rep is paid. While its simplicity makes it hard to argue with, it also leaves it much less effective than it should be, even in positions where there is no base, it is 100% commission.

If in fact incentives are supposed to drive behaviour, and let’s for the remainder of this post agree that behaviour equals activity, (the right activity), then why do most people only incent results?  Is it not the activities that ultimately lead to results, results, the close, is the end of the process, I guess that’s why they call it “closed”.  Why not then incent the right activities, the right behaviour that leads to the results.

Paying only for results seems to have an element of gambling to it.  At the risk of over dramatizing it, you roll the dice and hope the right numbers come up.  Sort of like taking a rep, giving him a territory, pump him, train him, and then send them out, and hopefully they come back with the right number.  And hey if it is a smaller number, it is a smaller payout.  But the savings on that incentive will never equal the lost opportunities.

One of the reasons to have a properly documented sales process is so that you sales organization can execute the sale in a logical and sequential way.  So then why not incent along the same line. So as an example let’s say a rep can potentially earn 10% on a given deal; assume the average deal is $100,000, $10,000 commission up for grabs.  Assume you have a five step process, and you know that based on past history, if specific activities are properly executed, the probability of closing the deal successful in a proper time frame goes up exponentially.  Would it not make more sense to incent the behaviours and activities that ensure that those steps are consistently executed?

Appointments are key, so you may pay 10% or $1,000 for qualified initial appointments, you would have to have qualified defined.  You know that if you can get people at a high enough level in the hierarchy to tour you facility, you stats show that you probability of closing those that tour is over 60%.  Why not pay another 10% for completing that.  Same stats show that (real) proposals have a closing rate of 70% or greater, so you pay 10% for real proposals.  This still leaves 70% for the close, but you have directly impacted behaviour by incenting it, which is the premise after all?

There are a number of issues that need to be considered, I do understand the view that the base salary is meant to pay for those activities, and the commission is reward for success.  I would not argue with that, as a concept it is valid and good, in reality it seems to lead to a vast majority of B2B reps not hitting their financial targets.  Some will tell you that this is where management by objective or some KPI scheme will help, again in concept great, let’s examine reality once more.  Under the conventional schemes you often find reps who will close a couple of large deals a year, get their commission, and the company still doesn’t get what it wants.

So while the details do need to be worked out, seems to me a much better way to impact and alter behaviour and drive execution in a way that is financially rewarding and fair for all.

Popularity: unranked [?]

Happy 2010 to everyone!

So you’ve got your goals for explosive growth this year all mapped out.  Good for you!  Now the hard part….

Are your sales people on board?  Have they bought in and accepted ownership of their portion of those goals?  Have they looked closely at what will be required of them to reach those goals?

This is where most sales organizations fail.  In the board room, the strategy sounds brilliant and the numbers seem reasonable and achievable.  But somehow the certainty at the corporate level doesn’t translate into enough additional opportunity when the sales feet hit the street.

And that’s where the sales compensation plan comes in right?  Well, if that means you use some formula to increase each salesperson’s quota so that the sum total of the quotas matches your overall corporate sales goals, then you’re missing the most crucial aspect of sales compensation.

The objective of a sales compensation plan is to drive appropriate behaviors.  In some businesses commission rates vary depending on the profitability of various products or services.  i.e. We want to encourage sales people to sell the most profitable things we produce.

From the salesperson’s perspective, these things are completely arbitrary and generally dampen motivation considerably.

Salespeople tend to be pretty ego-centric and see things through the lens of “what’s in it for me?”

Whatever your company goals and expectations for your sales team are, you’d better take time to figure out how you can show the salesperson what’s in it for him.  “Hey, you’ll make an extra $50k in commissions if you hit these increased goals I’ve set for you…” won’t cut it.  The salesperson just perceives the increased goals as additional work for him.

There are two indispensible aspects of selling a comp plan to your sales team:

1. You have to help the salesperson understand the things that you’re going to change that will help him sell more – increased marketing spending, new, more competitive products, more leads, new accounts, etc.
2. You have to help the salesperson look at how they spend their time and maximize the effectiveness of their efforts.

Selling your sales team on what the business is doing to help them should be straightforward.  Most businesses just fail to spend much time on it at all.  It’s worth spending half a day putting together a briefing or a few slides to walk them through.  With salespeople, the old saying “You can’t bullshit a bullshitter” is a good thing to keep in mind.  Be very specific.  Quantify things as much as possible.  “We’re going to go to the big XXXX show this year!” is not good enough.  Tell them how much that is expected to cost and how many new leads you’re hoping result from being there.  In fact, if you’re able to present all this in contrast to actual spending levels, numbers of leads, etc. for the previous year, that’s even better!

Showing the salesperson how to more effectively leverage their own time and effort is a taller order.  Salespeople are very much into freedom and doing their own thing.  It’s easy to be perceived as trying to micro manage.

This is where setting the goals and actually achieving them meet.  You and your salespeople have to be able to identify the part of your sales process that needs to change to meet the new goals.  Did we not generate enough new leads? Then how many new ones do we need and how are we going to get them? Did we lose too many deals to a competitor?  Why?  What will we do differently to beat that competitor more often?

These questions MUST be answered.  The more specific you can get, the more likely your success becomes.  The two factors that keep people from achieving their personal goals most often are –

• Inability to be specific and clear about where you want to go and when you want to be there.
• Inability to identify the daily behaviors that will lead to the achievement of those goals.

(here’s a good resource on goal setting – http://www.pauldeburger.com/downloads/articles/step-up.pdf ; )

Think about that!  It’s no wonder a salesperson that consistently beats their quota is so rare!  Most businesses aren’t able to tell them how to meet the goals they set for the salesperson and the salesperson is unlikely to have that ability either.

Examples of daily goals for a salesperson would be –

# of cold calls; # of potential prospects identified; # of new qualified prospects generated; # of presentations/proposals to qualified prospects; # of calls/meetings with existing customers; # of calls/meetings with people of a certain role within an organization

The fact is that when you and your sales team are able to identify the daily objectives that, using realistic expectations for results, will lead to the sales goals you’re after, you’ll find that surpassing your goals becomes more likely than failure!

In my work with businesses implementing CRM to improve efficiency and effectiveness of their selling efforts, one of the most shining examples of setting goals I’ve encountered was a company that competes in a narrow niche and their sales focus was mainly maintaining relationships with existing contacts for repeat business.  They found were able to show a direct correlation between sales success and number of “touches” with customers.  The more the salesperson made contact with customers, the more they sold.  So, they changed their entire commission and bonus structure so that it is based now entirely on the number of customers touches and not actual sales!  I know, it seems like a wild leap but, I can tell you that since implementing that change, they have vaulted from one of many to the dominant player in their industry.  My belief is that the change they made had the simple and extremely powerful effect of focusing sales attention on the one crucial behavior that leads directly to sales.

In your business, if it’s cold calling or generating prospects of a certain type or making contact with decision makers or whatever, you might want to think about tying sales commissions and targets to that objective.

Bottom line – the more clearly you can connect the dots between what your salespeople do each day and the results you are expecting, the more likely you and your salespeople are to succeed.  Whether you tie their compensation to them or not, if you all agree on what your salespeople should be accomplishing each day, week and month, you will all be agreed that you expect to reach your goals this year!

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Sales quotas are a source of contention in most companies. Having worked with sales people since 1995 I have seldom encountered a rep who said, “Gee, that’s all I need to sell this year?” Let’s face it, in many cases the selling organization has a completely different objective than the sales reps it employs. However, just because your objectives differ doesn’t mean you both can’t win.

The objective of this article is to shed light on the process of setting and achieving sales targets from both perspectives—the company and the sales rep.

Let’s start with the company’s perspective. Regardless of how well they performed during the previous year, I have yet to encounter a company who says, “We had a great year last so let’s just coast this year.” It simply doesn’t happen especially if the organization is publicly traded. After all, shareholders want—no, expect—a return on their investment. That’s just smart business.

Now, let’s look at this from the sales reps perspective. No one wants to earn less money than they did the previous year. This means that most sales reps resist an increase in their sales targets because they know they will have to work harder (or smarter) to achieve those goals. Human nature dictates that most people will naturally take the path of least resistance and that means working harder to achieve the same result goes against this instinct.

Most sales-based organizations make a variety of mistakes when establishing sales targets for their reps; here are two of them.

Mistake #1—Arbitrarily Assigning an Increase
While I agree that every company needs to project an increase in sales, picking a number out of the blue and applying it across all regions or divisions is not the best approach. This all-too-common mistake often negatively affects the performance and motivation of the sales team.

Mistake #2—Not Involving the Sales Team
Most companies do not involve their sales team in the development of their quotas and targets. I will be the first to admit that this may not be possible if you employ hundreds of sales reps; the logistics would be impossible to manage. However, you can encourage key people such as regional or division managers to actively involve their team in the quota-setting process.

Okay, now it’s time for you, the sales rep, to assume some responsibility. Here are two scenarios to consider.

Scenario 1—Arbitrary Quotas
Let’s assume that your company has arbitrarily assigned you a target for the upcoming year. You may not agree with it, but I hate to tell you, that’s irrelevant. Your target is established and the company expects you to achieve it. Rather than bitch, moan and whine about it, you need to figure out what you can do to achieve that goal. Evaluate your results from last year and determine what percentage of business was recurring and how much was revenue from new sources. Calculate how much recurring revenue you think you will generate in the upcoming year. Then, look at how you generated the new business last year and determine what action steps you need take to increase that figure.

If you work in a sales environment where you deal with the same accounts or customers you need to figure out how you can sell more to these customers. Sometimes, all it requires is more face time. In other situations, it means you need to learn more about their business and their goals and objectives because this will help you better position your products and services.

Scenario 2—Calculated Quotas
If you are lucky you many work for an organization who involves you in the quota-setting process. That means you are given the opportunity to actively participate in establishing your own goals. Here is the biggest mistake sales reps make when given this opportunity—they under-estimate. I know, you don’t want to bite off more than you can chew. After all, a mistake could seriously affect your earnings for the upcoming year. However, when you set your target too low, the company is only going to increase it anyway. The best sales reps don’t wait for their manager to set their sales target, they take action and establish their own goal, and in most cases, it’s higher than the quota their manager would have set. Use the process outlined in the first scenario to calculate your quota or target.

Regardless of your position (sales rep or sales manager) you are ultimately accountable for your results. Doesn’t it make sense to do whatever is necessary to achieve them?

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