Incentives for strong performance are key motivators for sales teams. In fact, they’re so deeply engrained in sales culture that it’s almost impossible to attract or retain strong salespeople, or to inspire strong performance, without competitive commission as a carrot.
Not sure where to begin your sales commission planning, or want to re-evaluate the program you already have in place? Here’s how to do so strategically and effectively:
1. Focus
It’s crucial that your sales commission program be built around your business objectives. Begin by focusing on your core business goals. What are they? What are you trying to achieve, and how could an incentive plan contribute to that?
Be realistic. Answering these questions is difficult for many of us, but it’s imperative to getting your plan right. Plan your commission strategy to incentivise work performance and achievements that actively and concretely contribute to your organisation’s goals.
2. Budget
Next, figure out the direct and variable costs of your plan. Would incentives take the form of a salary increase? A bonus? Coverage of travel expenses, a company vehicle, or other tangible perk? Do you have a sense of how much you can afford to reward employees (presumably, relative to the growth that they generate)?
Make sure you answer these questions early on in your planning; it’s absolutely crucial that your compensation be worth the cost to you. Otherwise, what’s the point?
3. Simplify
Best plans are concrete and straightforward – e.g. “For every X earned, you get Y.” Simplicity is key here – avoid having many different moving parts. (The exception is for retail businesses or those with shorter-term employees, which may have more complex compensation structures because of their unique timelines, staff turnover rates, or peak sales seasons).
Explain the proposed commission plan to a few people and have them explain it back to you; if they get it seriously wrong, or have tons of questions, hone in on the discrepancies and revise those problem areas. The ideal plan is clear, comprehensive and concise – under 4 pages, typed, and explainable in under a minute.
4. Test
While you’re getting feedback from others, ask them to try to game the system. Are there unanticipated ways that employees could unfairly manipulate the plan to get more recompense than you are prepared to provide?
Planning based on an annual timeline is usually best, since it encourages hard work year-round. A plan that says no incentive can be earned for the first quarter, for example, may inadvertently encourage staff to wait until the first quarter has passed to make an effort. Look out for ways your plan may unintentionally disincentive hard work.
That’s not to say that your plan can’t include bonuses over shorter timelines (e.g., a kick-up in Q3), but only that these should support – not undermine – the overall business goals.
5. Keep Consistent
If you want staff to follow your plan, they need to be confident that they’ll get what you promise. Unless absolutely necessary, don’t change the compensation structure mid-year and especially not retroactively. It sends out the wrong message and undermines confidence that you’ll deliver. You can add incentives mid-year, but don’t retract them.
6. Review and Re-evaluate
At the end of the first year, look critically at the progress you’ve made. Did your plan help your business objectives? Was it worthwhile? Do staff see the value (or, conversely, is it unsustainably costly)? Now’s the time to make any adjustments, while the slate is clean.
Aligning your strategy to your big-picture business goals may only be step one, but it’s also key to the overall process logic. In planning your sales commission strategy, you should be focusing on the takeaway you want for your employees. What message should this policy send about their work and its relation to your collective success? At the end of the day, that’s the carrot you want them focused on.