There are two different types of sales reps:
- Reps who are motivated by achievement
- Reps who are motivated by the dollar
The first type of rep tries as hard as possible to reach goals, while the other type of rep uses the sales compensation plan to max out earnings. While the motivations are different, both types of reps need to have a well-designed sales comp plan to guide them. If you have a poorly designed plan, some reps will chase the wrong achievements, and other reps will get away with bad behaviors because there are no financial penalties.
A powerful and thoughtful sales compensation plan states loud and clear the types of sales behaviors company leadership wants to encourage or discourage. As a sales manager, you should build out a comp plan that will not only motivate reps to sell, but will also incentivize the right behaviors to grow your business. This isn’t about where to set your on-target earnings (OTE) or what’s a fair split – this is about the extra levers you build into the comp plan to improve your sales team’s overall performance.
Here is how to build the right compensation plan to push your sales team to give fewer discounts, sign longer contracts, gain referrals and more!
Outline Your Priorities
The first step in creating a powerful sales comp plan is aligning your goals with the management and finance teams. Find out what matters most to the entire business – whether it’s the length of a contract, the payment terms, or the overall price. Work with company leaders to create a list in order of the highest to lowest priority for the business. If, for example, management wants to emphasize signing long-term contracts, that should be at the top of the list. Find the ranges that are acceptable to corporate, such as the lowest acceptable discounted price, or a 1 to 3 year contract window. This list then becomes the guidelines you follow to build out the terms of your sales incentive plan.
Make a Plan
Now that you know what is most important to company management, you can incentivize these specific sales behaviors. Since your company prefers to sign multi-year deals with new customers, your comp plan should include an accelerator – an additional bonus available after reps achieve quota – for multi-year deals. If the company also wants customers to pay up front rather than be billed on a monthly basis, reps should take a quota hit for agreeing to a delayed payment plan. This plan should tie directly to the list you received from management – the highest rewards and toughest penalties should be reserved for whatever is at the top of the list, and so on down the list of priorities.
Keep it Simple
When creating a comp plan, some managers get carried away and include too many details and confusing qualifiers. Because of this, some reps simply ignore their comp plan because they don’t fully understand it.
When you’re building a comp plan, the key is to make it straightforward and painfully obvious that the company is rewarding reps for one specific thing, and not for another. When you walk through the comp plan with your team of reps, it should be clear and easy to understand. Ideally, most software companies should focus on just 3 things:
- Length of contract
- Payment plan
- Price per unit
Beyond that, you can also add in smaller incentives for co-marketing, referrals, training programs, and other positive add-ons. However, those are peripheral options. Stay focused on the end game, and keep the plan simple, short, and to the point.
Encourage Comp Discussions
Now that you’ve updated your comp plan, it’s up to you to enforce it and remind reps of the benefits and drawbacks of specific behaviors. It shouldn’t be a taboo to talk about money in your office. When a rep is negotiating a deal, remind them that they will hit the accelerator by closing the deal this way, and not another way. Ask them, “Are you sure you want to take the hit on the commission to close this deal?” Instead of offering a discount, the rep will negotiate harder and try to offer other value to the prospect. The comp plan then becomes part of the talk track across the entire team, and you will be motivating the sales behaviors you want to see. Instead of reps guessing what their paycheck will be at the end of the month, they’ll know exactly what it will be and why.