Channeling the energy of a sales team can be challenging. How you compensate them determines where
they invest their time and the results you get.
I speak to business executives, one of the challenges I often hear is that their sales team is not doing the things they feel
are most critical to the success of the company. I then ask to see their compensation plan. After a thorough read, I share
my impression of the message of the compensation plan and ask if this is their intention. That's when things get scary! They
look at me blankly and say, "No, our intention is for our sales people to…" For them, the disconnect has been exposed.
many forget is that the blessing of sales is that a compensation plan doubles as a job description. However, that blessing
is also a curse as a compensation plan doubles as a job description. As one executive shared after going through the aforementioned
exercise, "We want our sales people to focus on selling our new product to our existing clients. Yet, we are compensating
the sales people in a way that they are better off pursuing new clients." He got it!
incongruence of sales compensation is one of the biggest disconnects in companies. Executives sit in a board room with strategic
plans of grandeur, but the plan collapses when they don't address the compensation for the sales troops. It is a very simple
equation. Sales people invest their time on activities that drive their compensation. Plain and simple. The thought that sales
people will actively and consistently perform activities that are not in their best financial interests is na´ve.
complicating matters, there are instances where sales people are compensated for delivering certain results while their managers
are compensated on a different set of results. Thus, the sales managers are driving their team consistently with their compensation
message, but inconsistently with their sales team members. It creates the visual of the sales manager pushing a boulder up
a hill trying to get their team to focus on activities that contradict their income. Best of luck!
structuring sales compensation plans, a company should strongly consider the goals for the company. Working backwards, the
goals for the company drive the structure of the sales compensation plan. Thus, they should be directly aligned. If the company's
goal is to gain adoption of a new product in the marketplace, the plan should reward sales people for accomplishing this feat.
If the goal is to increase revenue with their current clientele, the plan should reward for that. Anyone should be able to
read the plan and derive the intended message.
second consideration, when structuring sales compensation plans, is that sales managers and sales people should have alignment
with their respective results. If one is compensated for adding new clients and the other for selling a new product to existing
clients, and it does matter which is compensated for which, the incongruence causes a paralysis of performance.
this more daunting is that in complex sales environments, those that have protracted buying cycles, the standard salary and
commission model does not create enough of a framework to ensure that the sales team performs the right activities every day.
How do you structure the plan so that the team is motivated to do the right things every hour of every day?
also face a challenge of hiring sales people who are concerned about the length of time of the buying cycle in contrast to
their earnings. The standard solution is to bridge the gap with a draw. As you probably know, there are two types of draws.
There is the recoverable draw which is, in essence, a loan against the sales person's future commissions. Then, there is the
other, the non-recoverable draw which is money, free and clear, to the sales person for some period of time. Nothing good
comes out of either of these. The recoverable draw, almost always, puts the sales person in a financial hole. They wake up
each morning knowing they owe the company money. No one enjoys the feeling of debt. The non-recoverable draw, often times,
creates an earnings cliff. Let's say that the draw is for three months at $2,000 per month. In month four, the sales person
probably experiences a significant fall-off in their earnings. The end result is relationship damage between the sales person
and the company and a poor corporate investment. How do you structure the sales compensation plan to bridge the earnings gap
when recruiting new sales people?
challenge of motivating sales people and bridging the sales earnings gap can be solved with a creative compensation approach.
In the 1980s and 1990s, the big buzz term was MBO (Management by Objective). Business people were provided with a series of
objectives, and following a performance review, were compensated for achievement of such. What if the MBO concept was applied
to sales compensation? What if you created a Sales Behavioral Objective or SBO?
are reading this and think that I've just created additional sales cost, think again. I'm proposing a reallocation of the
dollars paid to your sales team. A percentage of the dollars normally budgeted for commissions would be allocated for an SBO
this. A company has a typical buying process with its clientele that is six months long. They pay their sales people a base
salary of $60,000. At 100% of plan, the sales person earns $90,000 or $30,000 over their base salary. However, no commissions
are earned in their first six months of employment due to the buying cycle. The company, as a means of managing sales behaviors
and attracting strong sales talent, budgets $15,000 of the $30,000 of commissions for the SBO bonus. The sales person is then
eligible to earn a $3,500 bonus each quarter in year one.
beginning of each quarter, the sales person has a formal review where the results of the prior quarter are shared and the
mission for the second is presented. The SBO changes from quarter to quarter based on the tenure of the sales person and the
needs of the business. The SBO is also not a "gimme." 100% accomplishment should be a stretch goal, but achievable for the
first quarter, the overall mission is getting the sales person assimilated into the company's environment. The measurements
of success at the end of the quarter are: a business/territory plan, the ability for the sales person to call on prospects,
and knowledge of the products. As measurement of achievement, the company provides a written test on product knowledge, a
scored, mock sales call, a scored, mock, sales presentation, and review of their business/territory plan. Based on the sales
person's accomplishments, they will receive a percentage of the $3,500 up to 100%.
quarters, a points system is put in place, making the SBO entirely objective, tied to performing the activities deemed critical
for the success of the business. In each quarter, the goal is for the sales person to achieve 100 points. The main objective
in the second quarter for this company is to have face-to-face meetings with qualified prospects. They are looking for their
sales person to have twenty face-to-face meetings in the quarter as a way to jump start their sales pipeline. Thus, the SBO
compensates five points for each meeting held. At the end of the quarter, whatever percentage the sales person delivers of
the 100 points, with a minimum achievement of 75%, is paid as a bonus. This includes those who over perform. Why penalize
them for doing more of the right things? What about quality? How do you know they are doing the right things in the prospect
meeting? Hopefully, you measured their proficiency in doing those things in the first quarter.
SBO program, in future quarters, is designed by identifying key, measurable sales activities aligned with the needs of the
business. Place weighting on the activities commensurate with your expectations of the sales person.
of you are probably thinking, "No way, I pay for results!" Well, results are a function of doing the right things each and
every day. Results are not miraculous. They are formulaic. The reality is that you have skin in the game with the SBO. As
a business executive, you and your team are tasked with determining what it takes for a sales person to generate the results
you desire. If you have done your job of identifying the success metrics and the sales person achieves those, the results
take care of themselves. The SBO is not just for year one since the challenge of managing sales behaviors is perpetual. One
important key is to budget enough dollars for the SBO bonus that it gets the attention of the sales people, but not so high
that it overshadows commissions.
bottom line is that the SBO program gives you the tool kit to channel the energy of the sales team toward achieving that goal.
It also provides you with a mechanism to attract sales talent to your company where, right on day one, they need to perform
to earn dollars over their salary. One other benefit of this program for those companies with lengthy buying processes, the
SBO provides you with a way to assess the sales person's performance in a way that you can identify, more quickly, those who
will not be successful in your company.
thing is for sure, the executive team of the company in the story knows that if they paid a sales person $15,000 SBO bonus
in year one, year two and beyond are going to be stellar.
Lee B. Salz is
a sales management guru who helps companies hire the right sales people, on-board them, and focus their sales activity using
his sales architecture« methodology. He is the President
of Sales Architects, the C.E.O. of Business Expert Webinars and author of “Soar Despite Your Dodo Sales Manager.” Lee is an online columnist for Sales and Marketing Management Magazine, a print columnist for SalesforceXP Magazine, and
the host of the Internet radio show, “Secrets of Business Gurus.” Look for Lee's new book in February 2009
titled, "The Sales Marriage” where he shares the secrets to hiring the right sales people. He is a passionate, dynamic
speaker and a business consultant. Lee can be reached at lsalz@SalesArchitecture.com or 763.416.4321.