Tag Archives: Plan mechanics

When two or more people work a sale, how should credit be shared?

Especially for large or complex sales, it often takes more than one person from the sales team to close the deal. If the two people are in different roles, for example the Account Executive responsible for the account and the Product Specialist responsible for sales of the key product, then both would usually receive full credit. If, however, two different Account Executives work together to close a deal, it may be appropriate to split the credit between them. The basic options are detailed below.

Double quota/double credit

Description: Each participant in a sale receives full quota and full credit for the sale (or “their” piece, e.g. Product Specialists take only their product slice)

Advantages:

  • Strong encouragement for participation of multiple sellers in an opportunity
  • Clear message regarding expectations communicated via quotas

Disadvantages:

  • Difficult to model selling costs in relation to sales productivity
  • Special care must be taken to ensure the team size is appropriate for the opportunity

Appropriate use:

  • When it is possible to anticipate the requirement for participation of each team member in a certain class of selling opportunities
  • When teaming is essential to the execution of the sales process

Credit splits

Description: Credit for all sales is divided among participating team members, with total credit adding to 100% of actual sale value

Advantages:

  • Easy to model and anticipate selling costs in relation to results
  • Opportunities will tend to be handled by the smallest effective team

Disadvantages:

  • Disincentive to team with others due to anticipated reduction in sales credit
  • Expectations regarding degree of teaming are not communicated via quotas

Appropriate use:

  • When it is important to be able to assign a team to an opportunity “on the fly”
  • When it is difficult to anticipate the teaming required, and therefore to set quota

There are ample variations on both of these types of incentive, including

  • “Layered quota / layered credit” in which more than two people are involved in a sale (e.g., Account Manager, Product Specialist, and Channel Manager)
  • Split credit with more than 100% of total sales being distributed (e.g., allow up to 200% credit, but with no more than 100% going to any one person/role)

Most complex sale requiring involvement of multiple sales people in most deals benefit from some form of shared sales credit. The appropriate form will depend on the intended coverage model and key accountabilities of each sales role. While the CFO will be concerned about “double paying” when several people receive sales credit and compensation for one sale, these concerns are generally allayed through rigorous modeling of the total cost of the selling function as it relates to overall sales productivity.

When is a relative ranking plan a good idea?

A relative ranking plan is one in which all sales people in a role are compared to their peers and ranked from top to bottom according to the plan measures (total sales, sales by product, margin value generated, etc.). Their compensation plan includes both their measurement criteria and the payout table showing how much the top sales person earns, the 2nd person, etc. on down to the bottom sales person (who typically earns no variable pay at all). The top sales person may earn several times the incentive at target (200% up to as high as 600% in some organizations), with the payout decreasing all the way down.

Advantages of relative ranking payout systems include:

  • The dispersion in variable pay is known in advance, designed, intentional, and totally controlled.
  • The total cost of variable pay for the organization can be budgeted with confidence – regardless of overall results, the total payout is unchanged.

Disadvantages, however, are significant:

  • The payout doesn’t vary with overall business results – total pay delivered in a “bad” year is the same as that delivered in a “blowout” year.
  • The sales people end up competing with their peers in a very real sense – “The only way for me to ‘win’ is for you to ‘lose.'” This is the reality of a relative ranking plan, and can undermine a sense of collaboration and shared success.

Relative ranking plans work best for sales forces in which collaboration is not a key requirement for success, the sales force is large enough that sufficient dispersion in pay can be created in the designed payout distribution, the sales role has limited influence on overall results (customers are buying from the company more than from each sales person, and the sales person has more influence over awareness than over the final buying decision – think of pharmaceutical sales reps).

For most sales roles, the more direct tie between performance and payout, independent of the performance of peers, provides the better combination of motivation for the sales people and alignment between sales results and the cost of compensation.

Why would I pay incentives to sales reps when the overall company is not hitting its goals?

Incentive compensation for sales reps is not like annual bonuses for the regular staff. Often it can make up 25%, 50% or even 100% of the reps’ entire pay. Just as you wouldn’t withhold salary from your employees because company performance is below target, nor should you withhold incentive pay from your sales reps if they earned it based on the formulas provided in their plan document. If you are having a bad month and don’t pay your sales reps their earned incentive, then one thing I can guarantee you is that your next month is NOT going to be any better.