Sales Organization
Sales compensation plans often fail because they are not rooted in careful analysis beforehand. Your plan has to be defined by the market you are in and who your customers and competitors are.
For example, if your customers are all young, you may do your sales work over the Internet; if you sell something with a long sales cycle that requires face-to-face meetings, you may want to be organized by territory.
Pasteris, who is president of TLMP Consulting Group, offered her compensation tips at a recent BLR-sponsored webinar.
Sales Roles Continuum
There are three basic roles in sales, says Pasteris:
- Customer Identification, which involves market analysis, identifying and qualifying customers, participating in industry events, etc.
- Customer Persuasion, which is actual selling: identifying who the buyer is and who can make the buying decision, and then making the presentation, overcoming objections, making the sale.
- Customer Service, which involves handling problems, giving information, handling feedback, seeing the order through delivery, installation, etc.
You don’t compensate the people in these three roles the same way, says Pasteris.
Successful Sales Retention
How do you increase retention? Consider the following:
- Key competencies—know what you are looking for before you hire. Define all the parameters. This helps you get and maintain a good match between people and job, says Pasteris.
- Risk profile—be sure you have alignment between the risk profile of the job and the applicant. (These first two bullets will help hire people that will fit, work well in your organization, and stay a long time.)
- Defining success—make sure that everyone knows what the requirements and associated rewards are.
- Training and development—it’s important to train on the incentive plan and on how your sales work is to be done; new salespeople, even very experienced people, need to learn your methods, your approach, your products.
- Dual career ladders—some organizations have found success with dual career ladders, which usually means there is more than a management track, that is, the best salespeople don’t have to move to management to get ahead. That’s not the only way to go. People can stay on as individual contributors and not be capped out below the managerial level, says Pasteris. Perhaps they move to a large account manager role—they’re at manager level, but no one reports to them.
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The Classic Metrics
- Volume. You need enough top line results to keep the company going. This is usually a dollar value but it can be denominated in units, or revenue vs last year or vs a quota, and it can also be further defined by amount from new customers, or amount from new products, etc.
- Return or profitability. This metric assures that we don’t have just volume, but sales with a profitable return. It could be gross margin or dollars and percent. Usually you don’t look at net margin because the salesperson generally doesn’t have much control. The more control salespeople have over selling price, the more emphasis is usually placed on the return metric, says Pasteris.
- Quality. Employers measure customer satisfaction, loyalty, and/or retention.
Some employers are also basing targets on competitors—that is, benchmarking; however, it is often hard to do this because it’s often hard to get competitor information.
Matrix Example—Two Variables
Because a single incentive can often result in unwanted results (for example, a large number of unprofitable sales), plans often call for an interaction between two measures of performance.
For example, in the matrix below, say 1 is volume and 2 is profitability.
Take a look at the middle number—the 100—that’s the target number. You may set that by the organization budget (what you want in sales) or you may set it higher than the budget, says Pasteris.
Note that you have to achieve both the volume target and the profitability target to pay out at the target level.
Many companies also set threshold amounts. A certain amount of performance has to be achieved before there is a payout.
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At the outstanding performance level on both measures, the payout is twice the target. You need to make your plan attractive enough to encourage salespeople to reach for the goals.
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Measure 1 |
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Threshold |
Target |
Outstanding |
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Outstanding |
50 |
125 |
200 |
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Measure 2 |
Target |
25 |
100 |
125 |
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Threshold |
0 |
25 |
50 |
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You can see that this can get fairly complicated, says Pasteris. What should the levels be? How do they interact?
Pasteris’s advice for those just starting incentive pay: Start simply. Crawl before you walk.
In tomorrow’s Advisor, Pasteris’s tips on communicating and administering your sales incentive plan, plus an introduction to the all-things-compensation-in-one-place website, Compensation.BLR.com.