I recently participated in a CFO Roundtable on the topic of sales compensation. These 20 CFOs represented a wide range of industries: manufacturing, HVAC systems, software, insurance, life sciences, marine transportation, among others. As CFOs, they were of course concerned about the cost of sales incentives. “It should be impossible for reps to have a great year if the company has a bad year!” one CFO shared.
Sound familiar? But when asked about their “burning” sales compensation issues, although a number of topics surfaced (eligibility, pay mix, plan complexity, driving margins) one topic seemed to represent a common strategic theme among the group… “How can we focus selling efforts on the new product?”
In good Socratic fashion I answered their question with a question. “How do you know this is a sales compensation issue?” As is often the case when new product goals are not getting met, the compensation program is first to blame. Changing the comp plan is a viable solution in some cases. For example, carving out a separate measure for the new product or creating a product mix objective can drive rep focus. But plan design changes will only help under certain circumstances. Before jumping to sales compensation for the answer, executives should first consider the following three questions:
Question 1: How similar is the buyer for the new product (compared with the core product)?
Question 2: How similar is the sales process for the new product (compared with the core product)?
Question 3: How well do customers understand the new product (compared to the core product)?
The answers to these three questions address the more fundamental question which is: “Can my existing sales force be successful selling the new product?” If the new products are bought by the same customer and level of buyer with a similar sales process (sales cycle length, complexity) and the new product has a similar level of market awareness or maturity as the core, then it’s reasonable to expect the existing sales reps can successfully sell the new product. In these instances redesigning the sales compensation plan may be the answer. But the more drastic the differences between the new product and the core, the more drastic the solution required to achieve the right sales focus on the new product.
Consider the simple schematic below outlining a continuum of solutions based on the degree of differences (Qs 1-2-3):
The right solution can range from a simple adjustment to the current compensation plan to launching a completely separate sales force. Even if the differences are small the sales force may require new training and coaching in conjunction with the right incentives. But drastically different products usually will not get the necessary selling focus from training and new incentive plans. Job design and coverage model changes are necessary. This usually comes at a higher cost. It’s cheaper to just add more products to the same seller’s bag, but if the product is not getting the needed attention more investment is needed. Understanding what level of investment is required can seem like a guessing game, and the bigger the investments the bigger the risk of failure. External benchmarks and insights can shed light on coverage models (channels, roles, selling approaches) and investments that work for companies with products similar to the new product (not the core).
What’s the key takeaway? When faced with challenges selling the new product leaders should not rush to “fix” the compensation plan. Doing so can result in wasted time and money on product incentives and rep training that won’t improve new product sales. A broader evaluation focused on the three key questions above is a better starting point. Leadership must collaborate – product development, marketing, finance and sales – to plan the best course of action.
Original author: Paul Vinogradov