Tag Archives: Linkages

How should sales people be rewarded for sales quality?

Most sales compensation plans reward for sales volume, most often revenue, margin, or units. As businesses grow, mature, and become more complex, the quality of the revenue increases in importance. This often comes up when the sales team has hit their assigned sales numbers, but the company is disappointed with the nature of those sales. We list below some of the most common business needs that create a need for measures of sales quality, and the kinds of compensation mechanics that may be used to reward those who deliver those "better" sales:

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Business need: Profitable business

Measures of Sales Quality
Comp Plan Features
Gross Margin value (e.g., dollars) Primary measure may be margin value
Gross Margin percent With sales value as the primary measure, margin percent may drive a modifier to increase/ decrease earnings as margins go over/ under target values
Overall deal profit (actual or projected) Primary measure may be deal profit
Discounts (to be minimized) Total payout on a deal may be reduced if discounts are outside target range

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Business need: Growth in sales of new/strategic products/services, or targeted customer types (e.g., new customers or customers in specific industries)

Measures of Sales Quality
Comp Plan Features
Sales (revenue/bookings) of emphasized offerings or to emphasized customer types Product or customer types chosen for emphasis (usually new or strategically important) may be differentially rewarded in one of the following ways:

  • Paid at a higher commission rate
  • Goaled separately with upside available for going beyond the goal
  • Goaled separately and treated as a hurdle so that pay for sales of other products is reduced until emphasized product sales are at acceptable levels

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Business need: Sales over goal/quota

Measures of Sales Quality
Comp Plan Features
Sales/margin value over goal/quota Quota attainment bonus paid when the goal is reached (usually binary, either you earn it or you don’t) Sales over goal are paid at a high commission rate so that the reward for getting to and beyond the goal is the opportunity to continue to earn at an accelerated rate Note that we prefer the 2nd of these because it puts the excitement into going beyond the goal, not just getting to the goal

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Business need: Consistent sales performance

Measures of Sales Quality
Comp Plan Features
Quarterly consistency measured as number of quarters at or over the quarterly goal A bonus for each quarter in which the quarter goal is attained, and my include

  • Half payment of the bonus if the quarter’s results are at least 90% of the goal (but less than 100%)
  • Higher payouts for more quarters at or over goal
Year-to-year consistency measured as the number of consecutive years at or over the annual goal A few good ideas for the this (pick one, or more):

  • A higher commission rate for those who made goal last year
  • A year-end bonus based on the number of consecutive years making the goal
  • Non-cash recognition for years over goal

Finally, with all these measurement possibilities and linkages on display, we feel compelled to caution you that, when it comes to sales compensation plan design,

Simpler Is Better. Be careful. No Gratuitous Complexity.

Only include these types of components in support of strategic imperatives for the business. And remember that you only really get to "say" about three things with your compensation plan and be "heard." Just because you can, that doesn’t mean you should.