Tag Archives: Team Selling

Looking Ahead: Should We Make a Change?

From July 2010 Sales Compensation Focus, a Publication of World at Work.

By Beth Carroll and Donya Rose

The economy appears to have taken a positive turn and many companies are starting to think about growth:  hiring more sales reps, launching a new product, or breaking into a new market segment.  One of the first questions that is raised when a company returns to growth mode, especially if there has been significant retrenching, is, “What should we do with our sales compensation plans?” Odds are high that the right focus for the recession is not going to be the best focus for the company’s growth phase. It may be time to take a hard look at your sales incentive plans.  There are some key indicators you can check to determine if it’s time to make a change, and if it is, if you can afford to wait until January 1 (or the start of your next fiscal year) to implement the new plans.

    1. You scaled back (or perhaps eliminated) incentive compensation during the recession, and now you see that your people are not engaged fully to capitalize on sales opportunities.You need to act as quickly as possible to regain momentum and re-energize your sales staff. While this is not a situation that should be left in place until the start of the next fiscal year, a full redesign of the plans may not be the only alternative. First, consider SPIFFs, contests and recognition programs. Are there things that can be done that will quickly drive new sales and create increased enthusiasm in a cost-effective manner? Second, consider adding a small “bounty” type incentive that provides additional income tied directly to the performance you need most right now (e.g., new customer acquisition), but that limits your exposure if sales opportunity radically exceeds or falls short of your expectations. Third, if you can, consider a stub-year plan that will shift people in the direction you will want to go at the start of the next fiscal year. If you filled in an incentive gap by increasing base salaries, you can start to move them back down again. If your employees have been earning 60% of what they earned in better years, you can start to bring that number back up again by developing a more modest incentive program with less leverage than was appropriate in more stable market conditions. In addition, you should consider the culture that has been enforced (or created) by your sales compensation program. Should you add a team-based element to keep the focus on working togethe
    2. You scaled back your expectations in terms of goals or volume production, and now you are starting to see payouts that are far higher than you expected. This is also a situation that has the potential for serious negative consequences on two fronts. First, your company’s financial performance could be adversely affected by overpayment in the incentive program. Second, your employees’ sense of their own value in the market place could be inflated beyond reasonable expectations. It is remarkable how quickly salespeople come to expect a higher level of earnings on an on-going basis once they have experienced it for a few months or quarters. It can be very hard for them to accept the adjustment that will inevitably be required. Quick action is needed to recalibrate expectations, supported by thorough modeling to make sure that pay levels return to appropriate levels without damage to morale, and while still providing significant upside earnings potential for true top performance.
    3. You are finding it difficult to hire top talent, and the reason cited is the lack of a competitive compensation package. You can take a two-pronged approach on this and develop a plan for new hires that would be a lead-in to next year’s plan for the existing staff. Because many companies provide a guarantee for new hires, such an arrangement is possible for a few months before any significant discrepancies in the two versions of the incentive plan are felt. However, you will want to make the transition strategy clear for the incumbents so they know that at a specific future date they will be moved onto the new incentive plan as well. Many salespeople have become leery of 100% variable plans, as they’ve seen what can happen when they fail to cover their draw month after month. Even top salespeople in industries that are highly risk-tolerant may be more interested in finding programs with at least a modest base salary. A 40/60 to 60/40 pay mix is reasonably aggressive, and yet either option allows some degree of control from an employer/employee perspective while providing salespeople with a greater sense of security. Of course, the less variability in the plan, the less leverage on the upside, as this is a necessary trade-off. But it is one that can be designed to provide very attractive earnings opportunities to true top performers.

    Paying more than one person for a sale – When is it appropriate, and does it cost too much?

    The practice of paying more than one person for the same sale is a common one, and one of the situations in which we most often find it is in Inside/Field sales teams.

    It is totally appropriate and makes sense to pay two people for a sale in either of the following situations:

    1. It takes both to get it sold (for example: the field person secures the contract then the inside person follows up to ensure units are purchased and deployed; or the inside person identifies opportunities and makes appointments, and the field person shows up to demonstrate the product and close the sale).
    2. Some opportunities need only one team member or the other, and others need both, and you want the team to work out the most efficient way to get the most sales between them without any penalty to either.

    In contrast, individual measures and credit to only one person for each deal makes the most sense when the customer base can be stratified so that one set of customers is totally covered by Inside, and another by the Field. Most often this is done based on the size of the customer. This arrangement allows very clear accountability for success and simple crediting and compensation calculation. When it is not used, it is generally because the teamed selling approach is deemed to be a more efficient one.

    If there is shared credit for each sale, the key to ensuring that the right selling focus occurs at the right cost of comp for the company is to set the rates so that appropriate total pay is delivered to each person when the TEAM makes their goal. For example, if the company intends to spend 10% of margin on sales compensation, it could be spent as 4% to Inside / 6% to Field, with both are paid for all sales. This has to also work in the context of the expected productivity of the teams, and the market value of their jobs.

    One other common challenge with this occurs when the team members feel that their earnings opportunity is negatively affected by the level of competence of their partner. So if an Inside person is paired with a new or less productive Outside partner, the Outside partner’s lack of productivity is likely to adversely affect the compensation of the Inside person. This will often drive organizations to expand team size or revert to separate quotas and sales credit.

    Group commissions where all team members share in a commission on sales made

    Question

    My company is considering instituting a plan where all team members would share in a commission on sales made. I’m looking for ideas – how is it structured, are all sales included in the group commission, etc.

    Answer

    The key principle that comes to mind here has to do with how the sales are made. Do the team members depend on each other to be successful? If they do, for each sale, then a team incentive where they have a single team target and a single team actual result, all receiving the same payout, makes great sense. If each team member has his or her “own” sales, and also supports the effort of the team, then an individual sales goal and a team goal may both be indicated (usually with a higher weight on the individual goal).