The Right Carrot
You need a sales force that's motivated to pad their pocketbooks by moving your product. Structuring a compensation plan is critical to attracting and retaining sales professionals whose success will enhance your bottom line.
Designing an appropriate compensation plan depends on what you're selling. "The standard rule is that the more persuasion needed, the more commission [and] less base will be involved," says Brent Longnecker, executive vice president of Resources Connection Inc., a Spring, Texas, firm that specializes in finance, accounting and human resources.
In structuring or restructuring your sales compensation package, consider calling in an expert to help you cover all the bases. According to Longnecker, "The best way would be to partner with an expert, let them learn a lot about [your] business and sales process, and have them propose a few different compensation alternatives."
Jerome Colletti, managing partner of management consulting firm Colletti-Fiss LLC in Scottsdale, Arizona, and co-author of Compensating New Sales Roles: How to Design Rewards That Work in Today's Selling Environment (AMACOM), recommends three key principles of designing a sales compensation plan:
1. Design the plan for the job, not the individual. Too frequently, entrepreneurs are attracted to a "type" of salesperson (such as one who sells on commission) rather than considering the characteristics of the selling situation. Focusing solely on people instead of on the job is the difference between hiring a few "rock star" salespeople and putting together a scalable sales force that can leverage the business.
2. Keep plan mechanics simple. A limited number of measures (no more than three) and simple formulas make a plan easy to explain and understand. One of the goals of any plan is to direct, motivate and reward the desired behavior-and that's not possible if salespeople don't understand the plan.
3. Make it pay for salespeople to overachieve. If the target incentive opportunity (commission or bonus) is $50,000, then, assuming profit margins and talent retention will support it, the upside should fall in a range of two to three times the target ($100,000 to $150,000) for outstanding performance.
Salary.com is a Web-based recruiting company that provides businesses with compensation evaluation tools. Bill Coleman, senior vice president of compensation for the Wellesley, Massachusetts, firm, adds these ingredients for designing a good plan:
- Remember the customer. Treating customers well before, during and after the sale is a wise investment.
- Account for sales cycles when designing the plan. Know how long it will take to close a sale and how much time and effort is required per sale.
- Select a fair commission. Whether it's a percentage of pay, a percentage of sales or a target dollar amount, proper calibration of your sales plan is crucial.
- Don't neglect base pay. Use market information to ensure your base pay levels are competitive. Salespeople live on base pay until their bonuses are paid-so if pay is insufficient, a few bad cycles could send your salespeople elsewhere.
- Revisit, revise and reset. Your business, your strategy and the economy will change with time. The plan should be flexible enough to change in stride.
- Encourage cooperation among salespeople. Sometimes it makes sense to give credit for an assist-that way, salespeople can bring in the best person for a particular deal without losing the commission.
Kimberly L. McCall is president of McCall Media & Marketing, a business communications company in Freeport, Maine.