Overcome Market Disruptors Through Enhanced Sales Compensation Practices
Market disruptors impact sales and should help sellers stay engaged.
Best-in-class sales compensation programmes motivate sellers to achieve company objectives. The critical elements of great sales incentive plans include establishing competitive pay levels, adopting the proper performance measures by job, crafting simple and powerful plan formulas and ensuring well-functioning support programmes, such as quotas, crediting and pay plan automation.
But today, market disruptions require companies to re-evaluate their sales compensation programmes to address recession concerns, inflation, supply chain bottlenecks and cross-market complexities. Specifically, improving company performance, engaging talent, supporting changing buyer needs and adopting new revenue streams are all under consideration. However, understanding how these disruptors impact your compensation plan will help you quickly address challenges and keep sales on track.
Incentivising Company Performance
Market disruptors directly impact company revenue, product, and account performance, resulting in missed local, country, regional and global targets. For instance, inflation and product competition may be driving up prices, which can impact seller performance in both positive and negative ways.
Challenge: Missed Revenue Targets
- Consider increasing rewards for hitting and exceeding goals, running special contests for sales excellence, offering enhanced sales training or providing more robust sales playbooks with compelling, contemporary value propositions.
- If the sector, region or country is entering a recession, consider reducing quotas. Reducing headcount and offering pay protection for the remaining workforce may be a feasible option if it is a severe recession.
- When market growth is 10% or less, this indicates market saturation. As a result, you can expect performance improvement mandates on selling costs and profits. One option is shifting informed buyers to digital platforms and adding digital sales personnel, lowering overall sales labour costs. Alternatively, adopting a price/profit incentive modifier for sellers will encourage profitable selling.
Challenge: Uneven Results
- Uneven Product Results: A revenue-only sales compensation plan may produce uneven product outcomes. Updating incentive plans may be necessary, including a quarterly incentive carve-out for emphasis products, for using a linked cross-sell ratio to reward balanced product selling or for using spiffs for special product campaigns and excess inventory reduction campaigns.
- Uneven Geographic Results: Many countries want to keep revenue local, but sales-focused plans may not recognise the complexity of buyers who cross borders. Identify which roles are responsible for regional or global accounts and ensure their goals align with the strategic geographic focus.
- Uneven Revenue Recognition Results: Supply chain delays will affect revenue recognition, impacting sales compensation payments. As an alternative, reward results at the time of booking, implement clawbacks for cancelled orders and split revenue recognition between bookings and invoices.
Challenge: Faltering Account Outcomes
If you miss organic growth objectives, have low retention of existing accounts or failure to add new accounts, you must re-focus your incentives to improve sellers’ efforts. Consider adding a linked incentive, such as an account performance hurdle or modifier, to bring additional attention to account-level outcomes.
Challenge: Inflation Price Increases
Rising prices can make it easier for sellers to reach quota. Consider adjusting quotas to reflect price increases while moving to unit reward incentives when prices are uncertain.
Attracting and Retaining Top Sales Talent
Well-trained and effective sellers are the core asset of any successful revenue team. However, a changing and dynamic labour market makes acquiring and retaining top talent more challenging. An effective sales compensation plan can be a valuable tool to ensure you attract the right types of talent and keep them engaged once hired.
Challenge: High Turnover
Turnover rates vary by industry, but 10% is a cross-industry average. Some sales functions, such as call centres and business-to-consumer selling, expect high turnover. However, when a once-stable sales workforce starts to experience high turnover, the sales compensation plan may be a contributing factor. Revisit job roles and overall pay levels, ensure sellers reach and exceed assigned quotas, and provide career paths that reward competency and longevity.
Challenge: Talent Acquisition and Retention
- Two primary factors contribute to too many open positions. A typical annual average turnover rate is 10%, while an average of 5% of positions remain open. Exceeding these benchmarks may indicate that it is time to review your compensation plan. One option is to adopt a sales associate programme with pay guarantees, so sales talent is on board when new positions become available. Successful talent acquisition programmes frequently offer a signing bonus and provide a referral bonus for sponsoring successful sales job candidates.
- Pay levels vary across geographies. Understanding the underlying market dynamics for each region, country and geography is imperative to attract and retain high-performing sales talent. Successful compensation methods include market pay adjustments or increasing the annual merit pool at a country-level midyear to match market trends.
Challenge: Rise of virtual selling
Buyers now dictate how they want to interact with sales teams, creating the need for both in-person and remote workforces. Accordingly, remote and hybrid work environments have changed how we work and sell. As a result, new selling motions continue to evolve and will impact compensation programmes. Companies are now revisiting staffing and pay alignment, overlay models, travel budgets and quota expectations.
Adapting to the Shifting Buyer Journey
Customers will continue to “shop for” the best purchase experience, including lower costs, improved efficiency, and frictionless digital purchase options. Alternatively, buyers might seek greater seller engagement when complex products and solutions have high purchase risks. Understanding who your customers are and how they want to buy is essential for providing the right buyer experience. Changing activities, roles and outcomes to match new buyer journeys almost always results in changing compensation plans to match.
Challenge: Relying on outdated buyer journeys
Whether customers want “low-touch” or “high-touch” seller contact, it is the role of the revenue team to identify how buyers want to purchase and then provide buyer journey pathways. Unfortunately, many companies are relying on outdated go-to-customer channel practices. It has never been more critical for companies to update their buyer journey maps to include specific customer segments, purchase pathways and required resources.
Challenge: Unaligned sales roles to buyer journeys
Companies may have mapped their buyer journeys but do not have the appropriate resources or processes to serve customer segments. First, configure jobs to match the buyer journey, including sales development personnel, digital chat specialists and a social media contact team. Next, provide sales rewards for all roles involved in engaging and persuading the customer, including initial and ongoing purchases. Finally, training all sales-related roles in selling, upselling and cross-selling will improve the team and overall sales performance.
Strategies for Recurring Revenue
Almost all sectors, including software, commercial services and manufacturing, desire recurring revenue streams rather than transactional revenue. As a result, traditional revenue organizations now seek to increase recurring revenue using measures such as annual contract value (ACV) and monthly recurring revenue (MRR) in addition to or to replace traditional revenue sources.
Challenge: Create Intentional Formulas
Based on company strategy, sales compensation designers need to create intentional formulas that either favour or provide parity between transaction and recurring revenue. Consider segmenting buyers into transactional versus recurring revenue targets and compensate sales teams accordingly. In addition, consider offering incentive pay-outs based on preferred revenue type. And when seeking seller neutrality, combining “adjusted” recurring revenue with transactional revenue to reward total revenue performance.
Staying On Top of Your Compensation Programme
Market disruptors directly impact sales compensation programmes and should be consistently monitored to ensure sellers stay engaged, motivated and rewarded. However, staying abreast of these changing dynamics, especially across geographic regions, can take time and effort. Alexander Group assists companies in identifying, recalibrating and aligning their sales compensation programmes to succeed in diverse markets and respond to growing market complexities.
For more information on how to design and implement a successful sales compensation programme, please contact an Alexander Group practice lead. Interested in learning more about best practices for sales compensation? Join Alexander Group’s complimentary EMEA Sales Compensation Community and get access to the latest insights, research, benchmarks and networking events!