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SAVVY
SELLING - NOVEMBER
17, 2006
Sales
Incentive Plans: 10 Essentials
by Michelle Nichols
EXECUTIVE
OVERVIEW
How to
create a plan that works for
both sellers interested in earning
more and business owners and
managers pushing for profits
Creating the perfect sales
compensation plan is a struggle
for companies of all sizes.
Salespeople want to make the
most money with the least effort.
Business owners and managers
want the most profits and the
fewest hassles. I addressed
this issue in a column over
three years ago (see BusinessWeek.com,
5/29/03, "May the Salesforce
Be With You!") and continue
to hear from readers asking
what they should do.
There's no one-size-fits-all
recipe for sales pay plans.
Within the sales profession,
compensation packages vary widely—from
$20,000 to $500,000 a year!
They can be based on straight
salary or pure commission—or
some combination of salary and
commission. They can also involve
bonuses which can be based on
personal sales, overall business
profitability, group sales,
product demonstrations, and
other criteria. The rewards
can also differ for various
product lines or types of customers.
Andris Zoltners, Prabhakant
Sinha, and Sally Lorimer wrote
a definitive book on this topic,
The Complete Guide to Sales
Force Incentive Compensation:
How to Design and Implement
Plans that Work (Amacom,
2006). It's about 500 pages
long and costs $65. That may
sound expensive until you realize
that's the cost of about 30
minutes of consulting, and less
than the price of one "please
don't leave us to work for our
competitor" lunch. I highly
recommend it.
What Are You Paying
For?
According to the authors, when
you offer sales incentives in
your pay plan, whether they're
commissions or bonuses, the
implications go beyond the finance
and payroll departments. Properly
constructed, they can energize
the sales force, communicate
what's most important in terms
of products or customers, help
attract and retain the best
salespeople, and develop a sales-oriented
culture. Of course, if sales
incentives aren't well thought
through, the opposite can also
occur.
I believe the best place to
start when creating your sales
pay plan is by determining what
your customers want. If they
would prefer more service and
expertise, you might want to
pay your salespeople more salary
and less commission. If your
customers prefer less hand-holding,
or if a group other than your
sales team handles customer
service, then setting up a plan
that offers more—or all—commission
might be right for you.
The authors warn that switching
from an all or primarily salary-based
plan to the opposite type will
probably result in an almost
complete turnover of sales staff.
By their nature, "farmers,"
or those who prefer to cultivate
existing clients, can't become
the "hunter" types
who uncover new accounts overnight,
and vice-versa.
Here are 10 essentials to consider
when constructing your plan
that I gleaned from the book.
• If you want your reps
to sell more of a particular
or new product line, consider
adding a bonus or increased
commission. However, be careful
not to make it so attractive
that they stop selling your
established, bread-and-butter
lines.
• If you pay your sales
force too much, they may get
complacent and not go after
new business. If you pay them
too little, you'll have high
turnover and high training expenses.
If you pay the top performers
too little and the low performers
too much, you'll lose your profit-generators
and keep your expense-generators.
• If you determine your
commission percentage based
only on volume, you may encourage
your sales reps to discount
more than necessary, resulting
in lower profitability.
• If you pay bonuses
based on customer-service scores,
customer service will improve.
However, you must guard against
sales reps seeking customer
satisfaction at the expense
of additional sales.
• If you want your reps
to sell new products or a new
product line, you might want
to offer a reward per demonstration,
even if they don't make a sale
right away.
• If you offer a monthly
overachievement bonus, salespeople
might be motivated to sell more
every other month. When I sold
on monthly quota, if an order
came in at the end of a low
sales month, we sometimes held
it for the next month, hoping
it would be better and put us
over our monthly goal. We called
this "putting an order
in the drawer."
• If you let the sales
manager decide how much bonus
will be paid each month, sales
reps will spend more time trying
to please their managers than
they spend trying to sell to
their customers.
• If you make the plan
too complex, your salespeople
will ignore it. My stockbroker
recently told me his pay plan
was so convoluted that he just
did what he thought was best
and waited to see how much they
paid him.
• If you're going to
change the sales-compensation
plan, compute how it will affect
your top 20 sales producers.
If a proposed plan hurts them,
find another plan.
• If you have only a
meager budget for bonuses, you
can make a big deal out of the
presentation, offer a humorous
and symbolic award (one company
I know gives a fake stuffed
beaver, because the beaver is
the hardest working animal in
the forest), or provide a lasting
memory, like putting their name
on a prominent plaque.
Just as an army travels on
its stomach, a sales force travels
on its compensation plan. You
can't throw one together at
the last minute or copy one
from another organization. You
also can't change it too often,
and you can't make it too complex—or
too simple.
Once you've decided on a plan,
consider how you'll sell it
to your sales force. Show them
how it benefits them personally,
then send them out to sell some
more. Happy selling!
Michelle Nichols is a
professional sales speaker and
consultant based in Reno, Nevada.
She welcomes your questions
and comments. You can visit
her web site at www.savvyselling.com
or contact her at michelle.nichols@savvyselling.com.
Her toll-free number is (877)
352-9684.
Copyright 2000-2006. All rights
reserved.
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