Is Your Compensation Plan Driving Sales Results?

When building a winning sales team and strategy there are a few principles that are sometimes overlooked. Let’s take a look at five questions that when answered properly should help youth build a compensation plan that inspires your sales team to thrive and keeps your company on track for revenue and profit goals.

1.) What will it take for my salespeople to survive on their income based on our cost-of-living?

While it is true that salespeople should be paid for their performance and that the top salespeople will earn the highest income, you do not want your salespeople worrying about how they will pay their basic expenditures. Maslow’s Hierarchy of Needs makes it pretty clear the physiological and safety needs are requirements for people to perform at a basic level. Fearing how you will pay rent or buy food is not likely motivating your salespeople to sell more. It is likely hurting them and causing them to question their abilities, lowering their confidence, and may be impeding their ability to close.

A base salary should allow someone to at least survive their basic expenses during a difficult month or quarter. If performance issues last longer than a quarter and are not team wide, then we should be working on coaching to a standard or coaching to a new opportunity.

While I suggest a base salary that allows for survival, be careful that the base is not so large that it impedes the company from offering a strong compensation plan for outstanding results while maintaining a comfortable profit margin.

2.) What is most important to my people? What drives the people on my sales team?

This has nothing to do with your compensation plan, but it is the most important question in determining how the compensation plan is promoted to your sales team on an individual basis.

Most people are not driven only by money. People are driven by security, travel, ability to provide for their family, and freedom. These are often afforded through income. The income alone though is not usually the driving factor.

It’s important to spend the time to get to know the driving factor for your sales team. When you are promoting the compensation plan structure and how it will impact their lives, they will be more likely to hit higher goals that will keep your company on track for your revenue and profit goals. Keep your team in mind and ask from their perspective, “What’s in it for me?”.

If I sell $4 Million in product a year, and I earn $X. Pushing me to sell $5 Million to earn $Y will require an understanding of what I would have to give up in order to hit that higher number – training, travel, hours worked, more calls and rejection and comparing that to what I will gain in return – income, freedom, recognition, promotion, significance, etc. If I, as a member of the team, believe the trade-off is worthwhile I will hit the higher goal. If I don’t, why would I put in the extra effort.

When building your compensation plan, consider whether or not you know enough about the people on your sales team to understand what drives them. Then coach them consistently on how to take advantage of the compensation plan to help them achieve their dreams. You will have happy salespeople which will consequently increase your results.

One of my favorite books on this topic is The Dream Manager by Matthew Kelly. If you are looking for a new level of connecting with your team by helping them achieve what is important to them then you should grab a copy of this book right now.

3.) What behaviors do I need to reward?

We should always reward what we want more of. What are the most important behaviors and outcomes that we can measure and reward that will help the company to reach their goals? In most cases it comes down to adding new clients, increasing repeat clients and average orders including looking for cross-selling opportunities, and generating referral business from current and past clients. These are typically the outcomes we are looking for.

While doing some consulting work with an automotive parts company, we discussed their compensation plan. We also discussed their results. It appeared that the sales team was less than enthusiastic about growth. When we took a deeper dive into the compensation, the reason was pretty clear. In order to earn an additional $10,000 a year they would have had to increase their sales by nearly 20%. The base salary was comfortable enough that people would stay on the team, but the company wasn’t growing sales because their compensation model wasn’t rewarding the right behaviors or results.

When it comes to behaviors, it may be a number of calls, a number of appointments, or some measure of conversion that needs to be met in order to reach company goals and ensure the success of the salesperson. When we isolate the right behaviors and outcomes and reward them properly, naturally we will see more of them.

However, there are two things that must exist in order for the team to buy-in to the reward process.

1.) The reward must be something that inspires action. This goes back to question two about knowing what is most important to your people.

2.) They have to understand the model.

If people don’t care about the reward, it will be a cost center only. If they don’t understand exactly how they earn the reward, you cannot leverage the reward to create the right behaviors or outcomes. So make the rewards and the systems for earning them measurable and simple to understand.

4.) Will this compensation plan attract the right talent?

If you want talented people, then you will have to invest in their talent. Everybody wants talented salespeople. Salespeople will need to believe in your company and in your product or service in order to sell effectively and with integrity. Beyond your company and product though, salespeople need to believe that they can achieve their personal goals through your compensation model. One of the greatest benefits of a sales career is the opportunity for uncapped earning potential. In order for salespeople to strive to take advantage of that opportunity, your compensation model needs to clearly illuminate how adding a new client or far surpassing their monthly quota earns them additional income to spend on their dreams.

Whether you choose to structure with a base salary or drawer should have little impact on what your salespeople are earning. If people are hanging around for the base you should likely be questioning whether you have the wrong people or possibly the wrong compensation model. Earlier we discussed how a small base can even out the dips and alleviate stress for your team. But be careful that you do not make it so comfortable there is no need to stretch and grow, and be careful not to make it so high that you cannot offer incentives for your highest achievers.

When someone asks what the pay range is for a sales position, the answer should almost always be infinite. Would you pay a salesperson a million dollars a year? What about ten million? You would if they found a way to bring in $50 million a year. This may be a slightly exaggerated in most cases, but the point is your pay structure should not be limiting their ability or desire to grow your business.

Will they change companies?

If you have direct competitors, would your compensation structure entice the most talented people in the industry to consider a move to your company? What would stop them? What would inspire them to make the leap? Where do you need to improve?

Will they change locations?

Would someone be willing to change their living situation to work on your team? I guess this depends on where you are located and what obstacles stand in the way for your potential future hire. Consider though how your location and your relocation plan may impact their decision. Potentially they don’t even have to move with the ability to work remotely. If you do want them to move though, you may need to consider this in your compensation structure.

5.) Is the compensation plan win-win?

Every business deal should come down to the fact that if we all walk away feeling like the winner then the relationship will likely continue. When someone feels like they are losing they will eventually learn not to place themselves in that situation again. Unless you want to constantly battle turn-over or go out of business you must consider whether your sales team can win while the company still wins. If the company is not profitable enough and cannot re-invest enough in the business to shift, move, adjust, and create to stay ahead of the market, then the salespeople and the company will both lose out in the long-run. If the company is profitable, but it does not effectively reward it’s sales team then it will stagnate growth and likely lose it’s top producers.