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Is Your Sales Incentive Plan Driving Bad Behavior?

By December 29, 2012Compensation, Sales
sales commission plan mistakes

sales compensationWithin legal and ethical limits, a good sales rep should do whatever puts the most money in their pocket and it’s up to the company to make sure their associated actions and behavior are consistent with the company strategy.  But this is sometimes easier said than done.  This article provides insights and suggestions for this dilemma and relates to one of my five golden rules of sales compensation.

Take for example a company that is just getting started and the thing that is most important to them is establishing a base of customers.  This might cause them to pay their sales reps a certain amount for each new account they acquire.  Perfect, right?  Well, if the definition of “new account” just means the customer bought anything, a savvy sales rep looking to maximize their earnings will sell the easiest offering just to get the compensation associated with acquiring a new account.  If the easiest thing to sell is of such minimal value that simply paying the sales commission crushes your profit margins, then you have a problem.

For example, let’s say you have an entry-level $99/mo offering that is intended to be purchased via your self-service channel (e-commerce, no sales “touch” involved) and a $499/mo offering that requires the influence and involvement of your inside sales team.  The savvy sales rep mentioned above might spend all of their time finding customers for the $99/mo offering because it’s so quick and easy to sell.  Oops, you can’t afford to pay an expensive sales person to sell the entry-level offering.

Because of this, you might need to decide to change the sales commission plan rules by requiring a minimum amount of revenue from a new account in order to qualify for the sales commission.  But now you’ve broken rule number two in sales compensation planning, which is to never change the rules in the middle of the game.  Rule number one, in case you’re curious, is to make sure sales compensation is aligned with business strategy.

Let’s say you have no choice but to make this change or you read this article before establishing your sales compensation plan and catch the issue before it’s ever a problem.  Your sales rep might immediately ask if the revenue amount is an all-or-nothing proposition or if there is any sales commission for a new account with a little less revenue.  With that you might decide that you’ll pay half of the commission amount for any new account, regardless of the deal size.

You can see where this is going.  Before you communicate the sales compensation plan, think it through by putting yourself in the shoes of a money-hungry sales rep that only wants to maximize their earnings, regardless of whether their actions are bad for the business.  How might they go about doing that and where might they identify loosely defined targets/rules or other “gray areas”?

If there are ways for your sales team to maximize their earnings that aren’t consistent with your business strategy, then adjust accordingly – but without adding so many rules and nuances that your sales team needs a magic decoder ring to figure out if/when/how they get compensated (another one of my golden rules – keep it simple).

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