Want to see salespeople’s heads explode? Tell them you are going to change their compensation plan. If the head doesn’t exactly explode, it will swivel around 360 degrees like in the movie “The Exorcist”.
As we described in our last blog How to hire the perfect sales people, salespeople universally hate their comp plans, but freak out when you try to change them. (Let’s face it, if these creatures were logical, they’d be in operations, not sales.)
Why change your compensation?
You shouldn’t change compensation unless your costs are going up, your expenses are going up, or your margins are under attack. Are any of these things happening to you?
At the same time, the salespeople are constantly whining because they want more marketing, more lead generation, more technical resources, and more administrative support. These all cost you money, which needs to come from somewhere. You don’t have to be Einstein to do the math on this one. If you want to make a profit, you need to adjust your comp plans over time.
10 quick actions you can take to improve your compensation plans
- Always present your comp plans by way of “On-Target Earnings”. Explain how much your salesperson will make when they attain their goal or quota. STAY ON MESSAGE: Don’t dwell in the changes in base, commission, bonus, etc. Talk about how much more money they will make when they hit plan. They will earn more, but need to sell more.
Wrong: “I just raised your Quota by 15%”
Right: “I just increased your On-Target Earnings by 10%"
- Make changes to your compensation EVERY YEAR.
When you make small, incremental changes every year, you don’t need to perform major surgery later. The longer you delay changes, the harder it will be down the road. Get your salespeople to expect your plans will evolve gradually, with market conditions.
- Always balance increases and decreases.
This is also called the “Spoonful of Sugar with the Medicine” strategy. Find services you want to grow and add incentives to sell them. Counterbalance the increases with decreases in less profitable lines of business.
- Increase compensation for difficult sales
It is much harder to open a new account than to renew or upsell an existing customer. Pay more for it.
- Decrease compensation for easy sales (such as add-ons and renewals of existing customers).
Many lazy salespeople can make a good living just milking their existing account base. Don’t let them become fat, dumb, and happy while your service team does all the hard work!
- Use a variety of SPIFs.
A Sales Performance Incentive Fund is a one-time cash payment to reward some type of sales activity you are trying to increase. Salespeople, being irrational, value cash in hand more than the same money via paycheck. Examples might be: $100 for the first sale of a Platinum Contract; $50 for the first new appointment set this week; or $250 for the first sale of a new Cloud Offer.
- Set cash bonuses for attaining big achievement milestones.
These provide great incentive value, but cost you NOTHING until they are achieved. Examples: Bonus for hitting $1 Million or $5 Million Revenue (product-based); Bonus for hitting $500K or $1M in GP (solution-based); or Bonus for hitting $25,000 or $50,000 in MRR (monthly payment-based).
- Use Commission Accelerators
Increase payouts once certain milestones are attained. Add a couple points commission when salespeople reach $300,000 GP or $20,000 in MRR. The payouts can start low, then increase over time.
- Space out your big payouts throughout the year.
The most vulnerable time for your top salesperson to quit and join the competition is right after they receive an annual bonus. Prevent this problem by offering smaller payouts spaced out 3-4-5 months apart. When a competitor starts whispering “sweet nothings” in your salesperson’s ear, they might think twice if they have a big check coming next month, and in four months, etc. You might do it this way: Annual Project bonus paid in January; Company Incentive Trip in May; Annual Services bonus paid in September.
“We’ll pay you big bucks to move”
“Sorry, I’m expecting a big bonus in two months”
- Publicize all your salespeople’s big achievements and payouts.
When someone makes a bonus or hits a big milestone, make an announcement, ring a bell, bang a gong, honk your horn, etc. Make a big deal, and show your appreciation.
When you take these actions year after year, you can slowly evolve your sales compensation as the market and your cost structure change. Eventually, you might be able to make a profit!
Will your salespeople still go bananas when you announce your changes? You betcha.