There’s a belief that sales people are coin-operated (i.e. they work purely on extrinsic rewards like their pay packet).
While this may be true for some, my experience is that the best sales people are driven by intrinsic goals and rewards (achieving results, recognition, helping customers) with an understanding that the money will follow.
Good compensation plans reward success while enabling companies to weed out non-performers. But, equally, they should reward sales people for doing the right thing.
There are countless stories of compensation plans that had unintended consequences from innovative sales teams finding shortcuts.
Now, when the sales process is established, the likelihood of that is lessened. But when the business model is untried or untested, the chances of this are much higher.
Which is what I see in companies transitioning to the Cloud but holding onto old compensation plans. In fact, I am aware of organisations where perpetual license teams poached subscription license clients (and convinced them to pay a lump sum to own the software) in order to achieve their targets.
So, in this instance, a compensation plan should really be about rewarding the behaviour that achieves results, not the results themselves. Consider the five different models shown in this article.
In the end, alignment is the key word. Your reward system must align with the behaviours you want, which must align with your company goals. And if compensation doesn’t change, nothing does.
5 different models, 5 different objectives:
- 100 per cent commission up front (e.g. the first month’s income as commission with no residual payments). This is ideal for new customer acquisition, but can create a culture that is not oriented to customer service or retention.
- 100 per cent commission on consumption (i.e. paying commission totally on a recurring revenue basis). This is ideal for customer retention and growth, but over time will mean that sales people are less likely to chase new customers.
- Mix with more up front (i.e. higher percentage paid as commission up front, with smaller percentage based on the customers recurring revenue). Main emphasis is on acquisition, but also drives retention.
- Mix with less up front (i.e. lower percentage up front, with higher percentage based recurring revenue). Some acquisition, but focus in predominantly retention and growth.
- No commission (i.e. reps on a fixed salary). This is better for customer retention, although it can also be applied to acquisition. This model reduces “bad” behaviour, but can be very challenging to manage.