Is Your Compensation Plan Evolving with the Company?
This post is for Small Company CSOs and VPs of Sales. One of the core strengths of any small business is its ability to adapt and pivot with the market. Despite this luxury, the small company sales compensation plan is usually left on the backburner. This is a crucial mistake.
To drive the right behavior and hit your targets, your sales compensation must evolve at the same pace as your company. This is especially important for smaller companies where revenue growth and new clients are vital for success. Click here and receive our Field Sales Compensation Assessment Sheet to find out if your program is outdated.
Are you clinging to a legacy Sales Compensation model? If so, the good news is you’re not alone. The bad news is, if you want to make quota, you need to overhaul the program. The worst thing to do is make minor tweaks and hope for substantial improvement. You need to re-evaluate and change now.
Here are the most common outdated small company compensation plans we see:
The Big Base Salary: When you first began building your team, sales were erratic and varied greatly. In order to attract high quality candidates, you needed to provide an attractive pay package with some stability. To accomplish this, you created a large base salary component with a kicker or bonus for hitting the sales target.
Problem: Now you’ve got the reps, but don’t see the performance. Most of your reps seem to lack the urgency and hustle of the competition.
Jack of All Trades: Your reps wear multiple hats. You expect them to hunt new logos AND upsell existing customers. They are also your ad-hoc customer service team. To compensate them for these efforts, you pay them both on trailing revenue and new logos.
Problem: You’ve got the stock broker model. Your new reps hustle for the first couple of years. But once they establish the terriroty with a solid revenue stream they get comfortable. They've stopped hunting for new clients.
Same Old Quota: Back in the day, just getting past the gatekeeper and into the corporate office required a lot of legwork. You rewarded your staff handsomely for each new opportunity they closed. Your quotas have grown, but not at the pace of clients who are willing to engage with your firm. Some even proactively call you.
Problem: Your “B” and “C” reps are earning the same pay despite putting in less effort. They continue to hit slightly larger numbers from the previous year, but spend much less time prospecting and cold-calling. You’d like to see an increase in sales with this huge decrease in prospecting time.
If you recognize one of these problems, it’s time to re-evaluate your Sales Compensation plan. As your business matures, so should the way you pay reps. Compare your sales team compensation to your competition and the market. There are two ways to do this:
1) Hire A Consulting Firm.
2) Do it Yourself.
If you decide on #2, here's how to objectively evaluate your compensation plan:
- Look at your role responsibilities and find the comparable positions at your competitors
- Conduct research on the internet or send a trusted rep to the competition to determine what they are paying and how.
- Compare your programs. Sign up for the Q3 Research Study Tour here and get our Sales Compensation Assessment Scorecard to help with this evaluation.
Here are some key metrics to look at:
- Your Base vs. Variable Pay Mix at 100% Quota Attainment vs the Competition.
- Total payout for 100% Quota Attainment vs the Competition.
- % of Your Reps Receiving Incentive Compensation
- % of Your Reps At or Above 100% Quota
- Payout Distribution (Are your top reps making 3X as much variable compensation as your “C” Players?)
- Role differences: Does your competition segment lower value sales activities (Account Management, Customer Service) from higher value (New Logo Acquisition?
Use these key metrics to re-adjust pay at a world class rate (Top 75% of competitors). Given the legacy plans above, this may mean:
- Increasing variable compensation and decreasing salaries
- Setting new quotas in-line with both territory potential and growth targets
- Creating seperate quotas for Revenue Stream and New Logo Revenue
- Creating a ramped compensation structure based on quota attainment.
- Creating new roles within your sales force based on activity, and paying those roles differently
By recalibrating your compensation program with an emphasis on variable pay you send a message to your sales force: You’re willing to pay top dollar for “A” Player Performance. It also signals to reps that live off an outdated system to change their ways.
Small company CSOs and VPs of Sales—What other Sales Compensation missteps have you seen? Was it changed in time, or did the company suffer? I’d be interested to hear your thoughts, or field any questions.
Author: Drew Zarges
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