Common mistakes to avoid in sales compensation plan

What do you think drives your revenue in the marketplace, aside from your reputation?

Yes, the motivation and enthusiasm in each one of your sales reps are what drives revenue. And what drives their enthusiasm? Money! After all, everybody works to earn a handsome pay package. It is a fairly well-known fact that close to 55% of your workforce are core performers and often make up for a larger share of the total revenue compared to your high performers and lower performers. Your high performing sales reps are motivated and function at a different level.

Sales territory management recognizes the significance of sales compensation, yet it acknowledges that the internal motivation to excel is what propels core performers to consistently outperform their peers. For these exceptional individuals within the sales workforce, the sales compensation plan serves as a driving force in their pursuit of excellence.

A variable sales compensation plan or OTE (On Target Earnings) is the de facto industry practice when it comes to compensation for sales executives. This sales compensation plan must strike the right balance between your business objectives and the motivation of your sales staff. It is quite possible that over the years, a few issues creep in.

Therefore, it is important that you as a leader and business owner are aware of such issues, so they are identified in time and mitigated before it is too late. In the sections that follow we shall go through many such common mistakes or issues, including sales incentive plan examples, that creep into sales compensation plans and warrant a review of the system every once in a while.

‍Sales compensation plan mistakes and how to avoid them

Uniform sales compensation plan

You have got to understand that human resources are not machines. There are some exceptional sales talents and there are some that just get by. Putting the exceptional ones in the same bucket as the others virtually stifles their drive. While it is true that your core performers drive most of your revenue, your high performers are the ones who get you the big accounts. Consider incorporating a pay curve and utilizing tools like the Sales Mix Calculator to tailor your sales compensation plan for optimal performance. This plan should handsomely reward those who exceed sales quotas, motivating core performers to potentially become high performers.

It is imperative then that you have a sales compensation plan that includes a pay curve. A plan that handsomely rewards those who exceed sales quotas. This may even get some core performers motivated enough to crossover and become high performers.

Obscure and difficult to access

A recent Simon-Kucher study indicates the value of keeping your sales compensation plan limited to three variables or less. Keeping your plan simple, clear, visible and honest is the key. Sales folks should have a clear idea of their OTE potential. A tool that allows them to access their sales compensation plans, letting them see where they stand against their OTE in real-time, on any smart device, would be a good investment to start with.

Keeping sales compensation plans or OTE, honest will only help your business in the long run. You will never be able to retain good sales talent with sales compensation gimmickry. You might even be tempted to offer a weekly incentive-based learning curve for your new sales reps. Avoid it, this will only complicate your sales compensation plans ending up overpaying for underperformance.

Long term target based

Very few among us stay motivated for long periods. The same holds true for sales folks. A compensation plan based on long term rewards is like a mirage in some cases. A good practice is to keep them motivated throughout the year. Attaining short term goals often add up to long term achievements anyway.

A monthly or at best quarterly sales compensation plan will keep your sales folks interested. Not saying that you should completely do away with annual rewards. Keeping that one special reward for the year-end, might be a good idea, but do keep them motivated throughout the year with juicy monthly or quarterly incentives.

Lift and shift

One thing where the management is found on the wrong foot most often is, implementation of a sales compensation plan in a lift and shift fashion. While it is enticing to implement a plan that is working wonders elsewhere, it might not be tuned well to your own strengths and weaknesses. The management needs to formulate a plan with inputs from sales, human resources and finance.

Using only your data

You must be aware of how expensive the hiring process can get. There is a lot at stake when it comes to sales, and retaining your sales talent becomes really critical. Using your own mix of sales compensation plans without due diligence on the pay structure in vogue. It is all about offering competitive compensation plans in line with the market practice.

Without any input from sales

Many times the management takes a decision on sales compensation plans without taking the sales team into confidence. It is cruel, to say the least, to not include the sales team when taking a decision on sales compensation. The sales team understands ground zero in sales than any other entity in the business.

So, let them suggest a sales compensation plan that works on the current strengths and weaknesses of the team. This also means that the plan should be designed to be flexible. Sales teams see a lot of churns, people leave and new people join. There is a constant shift in strengths and weaknesses within the team. Ideally, you would want a regular review of the plan to harness the strengths of the team and work on the weaknesses within.

Based on the monetary incentives alone

Many in sales look forward to exciting travel opportunities, especially the high performers. The high performers are driven by something that goes beyond the cash incentives. They take pride in what they do and need the psychological incentive of showcasing their achievements.

Non-cash rewards including trophies, merchandise and travel opportunities which should be a part of your sales compensation plans, to keep such individuals motivated. Non-cash rewards are a visible acknowledgement of their achievements and contribution to the business.

Spreadsheet-based

A common mistake but one that can potentially cause the most damage, is having your sales compensation plan on a spreadsheet application. From introducing data entry errors to having multiple copies with conflicting values planted, can create an irreversible mess.

Today you have automated tools that deal with not only your sales compensation plans but also effectively work out your sales performance management and overall sales strategy. The use of such tools will help build transparency and trust among your sales folks, which as you already know works wonders for your sales.

Conclusion

Looking for a sales compensation planning tool for your business? We have the right tool built to help you design an optimum and balanced compensation plan for your business. No matter which business you are in, if you have sales folks working for you, Incentive Compensation Management from Kennect.io will help you design and track a sales compensation plan that works.

‍Request a free demo today to get to know-how.