As a technology sales consultant, I commonly have strategic conversations about sales compensation. I often ask the VP of Sales, “How did you design your sales compensation plan?”
Too often, I hear, “I used the comp plan that we had at my last company.” Common mistake. Big mistake. Unless you have the exact same sales process, competitive lay of the land, average sale price, and intend to grow in the exact same manner as your last company, assume the comp plan that worked at your last company won’t work at your new company.
In his book, The Sales Acceleration Formula, Mark Roberge, Chief Revenue Office at HubSpot, states “The sales compensation plan is…the most powerful tool in your tool chest…drives the results of the business.“ Mark took HubSpot from $0 to $100,000,000.
In the chapter on sales compensation, Mark discusses how sales compensation strategy drove results at HubSpot. They made changes to the HubSpot sales compensation plan based on their stage of growth and strategic goals. For example, initially they needed to acquire customers, so the plan was designed to drive the sales behavior that led to new customer acquisition. As they grew, they learned who their ideal customers were. So they redesigned the compensation strategy to drive the sales behavior that led to acquisition of those ideal customers. HubSpot’s comp plan was adapted to a changing strategy as the company grew to over $100,000,000. Yours should too.
When designing your sales compensation plan, start by determining the one or two behaviors you want sales people to perform.
Note, I said the one or two behaviors. Not three, four, five or six behaviors. You can’t design a compensation strategy that drives the behavior to acquire new customers, grows business with existing customers, sells new products, expands a territory, and works with channel partners! It’s best to identify one or two behaviors you want them to perform, and then set compensation measures against those behaviors. For example, acquire new customers and expand business after the sale (two behaviors). Pay commission on all sales, but also pay an extra spiff for every new customer acquired.
Six best practices in sales compensation
- Keep it simple. 3rd grade, second semester please
- Pay as close to point of sale as possible. I sell, I get a check, I repeat
- Pay on revenue, control profit with sell price. You can’t pay me on margin and expect high growth
- Pay for the behavior that will drive the sales results you desire. If you pay me for multiple behaviors, you break rule one
- Obtain signed commission plan documents. If there are disputes, I can litigate much easier without a signed, correctly worded plan document
- Pay for what they can control. Don’t ding me for implementation failure or past due accounts receivable, unless I do the implementation and collect the accounts receivable
As salespeople, we’re coin operated, and proud of it. It’s simple really, pay me for the behavior you’d like me to perform, and I’ll do it.