Compensation-Its about more than hitting the number
Compensation-Its about more than hitting the number!
Previously I have looked at two important variables in designing a compensation plan for your sales reps, specifically the type of organization you are, and the business you are in. This week is about the longer term impacts of your compensation plan. Specifically how do you build a plan that is going to incent your sales reps to build your business while they line their pockets.
Most commission plans are focused in a fixed interval such as a month/quarter/year. The challenge is that momentum is built over multiple years and across multiple sales people. Yet it is difficult to get salespeople to think beyond their next paycheck let alone across multiple years of a business cycle. A common philosophy is: "Well if we are constantly closing sales then we will by nature of winning deals build momentum and let marketing worry about the rest." I disagree. I think that sales management needs to build a consistent and disciplined focus on territory/market building and through that effort will come predictable forecasting, consistent achievement of targets, and higher ASP's, irrespective of the individual sales person working the territory.
How do you do this? Well most simply by understanding what are the metrics that are going to result in long term territory growth. In my experience a couple of interesting examples are:
1. % of penetration in target market by segment
This is the number of customers of the available prospect base that are using your product. This can be defined in many ways. One example might be if you have a territory manager for White plains, NY, and are selling IT services to accounting firms with revenues over $1M annually, what %of available firms are using your services in any capacity. The secret is to set a target rate and a % growth rate. As you can see this is a long term target that is directly in the hands of the salesperson.
2. % repeat business in active customers
This metric is about strengthening current client relationships. A territory manager might have a target of 5% of current clients need to purchase something. This is about keeping your client base fresh and actively engaged with you.
I am sure there are many more that are tied to specific business models. As you can see these kinds of metrics rewarded with a bonus structure or a % accelerator on commissions incent the sales rep to build the momentum of the business. The key is when using these kinds of concepts is, the compensation plan must accelerate as the sales rep does more and more of what management requires. This will create momentum in the sales force to push harder towards both the quota targets and the territory metrics, resulting in short and long term business success.
Moment of Zen
"Nothing is equivalent to knowledge"-Vedas
Most commission plans are focused in a fixed interval such as a month/quarter/year. The challenge is that momentum is built over multiple years and across multiple sales people. Yet it is difficult to get salespeople to think beyond their next paycheck let alone across multiple years of a business cycle. A common philosophy is: "Well if we are constantly closing sales then we will by nature of winning deals build momentum and let marketing worry about the rest." I disagree. I think that sales management needs to build a consistent and disciplined focus on territory/market building and through that effort will come predictable forecasting, consistent achievement of targets, and higher ASP's, irrespective of the individual sales person working the territory.
How do you do this? Well most simply by understanding what are the metrics that are going to result in long term territory growth. In my experience a couple of interesting examples are:
1. % of penetration in target market by segment
This is the number of customers of the available prospect base that are using your product. This can be defined in many ways. One example might be if you have a territory manager for White plains, NY, and are selling IT services to accounting firms with revenues over $1M annually, what %of available firms are using your services in any capacity. The secret is to set a target rate and a % growth rate. As you can see this is a long term target that is directly in the hands of the salesperson.
2. % repeat business in active customers
This metric is about strengthening current client relationships. A territory manager might have a target of 5% of current clients need to purchase something. This is about keeping your client base fresh and actively engaged with you.
I am sure there are many more that are tied to specific business models. As you can see these kinds of metrics rewarded with a bonus structure or a % accelerator on commissions incent the sales rep to build the momentum of the business. The key is when using these kinds of concepts is, the compensation plan must accelerate as the sales rep does more and more of what management requires. This will create momentum in the sales force to push harder towards both the quota targets and the territory metrics, resulting in short and long term business success.
Moment of Zen
"Nothing is equivalent to knowledge"-Vedas
|
|
