Sales Compensation: Solving Today’s Market Disruptors
Conditions and Solutions to Address Market Disruptors
High turnover, recession, rising pay packages, talent shortages, inflation, supply chain delays, excess inventory and virtual selling are just a few of the disruptions facing sales compensation stakeholders. These disruptors might upend your well-functioning sales compensation program. Let’s consider these market factors and what you can do to ensure the sales compensation program continues contributing to revenue success.
Best-in-class sales compensation programs motivate sellers to achieve company objectives. The key elements of great sales incentive plans are competitive pay levels, adopting the right performance measures by job, crafting simple and powerful plan formulas, and ensuring well-functioning support programs, such as quotas, crediting and pay plan automation.
Be prepared. Revenue leadership may call on you to address one or more market disruptors. Consider the following conditions and solutions as you navigate these pop-up realities:
- Company Performance Challenges
- Staffing Constraints
- Escalating Market Pay Rates
- Shifting Buyer Journey
- Rise of Virtual Selling
- Recurring Revenue Ambitions
Company Performance Challenges
Company revenue, product and account performance may be missing their targets. Inflation may be driving up prices. It’s time to take a closer look at the sales compensation program for potential solutions.
Missed Revenue Targets
- Setting aside product competitiveness and pricing, investigate why the sales force might be missing sales goals. Consider increasing rewards for hitting and exceeding goals; running special contests for sales excellence; offering enhanced sales training; and providing more robust sales playbooks with compelling, contemporary value propositions.
- Is your sector entering a recession? Consider adjusting quotas down, and if severe, reducing headcount and offering pay protection for the remaining workforce.
- If market saturation has arrived, featuring market growth of 10% or less, expect performance improvement mandates on selling costs and profits. Consider reducing expensive seller headcount by shifting informed buyers to digital platform and telephone sales personnel; and for sellers, adopting a price/profit incentive modifier to encourage profitable selling.
Uneven Product Results
- Business units want their products sold. A revenue-only sales compensation plan may produce uneven product outcomes. Consider using a quarterly incentive carve-out for emphasis products; using a linked cross-sell ratio to reward balanced product selling; and using spiffs for special product campaigns and excessive inventory reduction.
- Supply chain delays will affect revenue recognition. Consider rewarding sales results at bookings; using clawbacks for canceled orders; and splitting revenue recognition between bookings and invoices.
Faltering Account Outcomes
- Less than desired account outcomes, such as missed organic growth objectives, low retention of existing accounts and failure to add new accounts, often need the focused attention of sellers. Consider adding a linked incentive, such as an account performance hurdle or modifier, to bring additional attention to account outcomes.
Inflation Price Increases
- Rising prices will make it easier for sellers to reach quota. Consider adjusting quotas to reflect price increases; and moving to unit reward incentives when prices are uncertain.
Well-trained and effective sellers are the core asset of any successful revenue team. What if turnover is increasing, the number of open positions is rising and acquiring new talent is challenging?
- Turnover rates vary by industry, but 10% is a cross-industry average. Some sales functions expect high turnover, such as call centers and business-to-consumer selling. However, when a once-stable sales workforce starts to experience high turnover, numerous factors could be causing the high turnover; the sales compensation plan could be contributing to this turnover. Consider increasing overall pay levels; ensuring more sellers reach and exceed quota; and providing a job career ladder to reward competency and longevity.
Too Many Open Positions
- With an expected turnover of 10% each year, there will be open sales positions waiting to be staffed. This number typically averages 5% of all positions. If the number of open positions is higher than 5% or is increasing rapidly, then see if the pay plan can help reduce the number of open positions. Consider adopting a sales associate program with pay guarantees to have sales talent available for assignment when open positions occur.
Acquiring New Talent
- High turnover? Lots of open positions? The company must be successful in acquiring new talent. Consider offering a signing bonus (average $2,500, but up to $15,000 in severe cases); instituting a sales associate program to fill open positions as they occur; and giving company personnel a referral bonus for sponsoring successful sales job candidates.
Escalating Market Pay Rates
Some market sectors will experience rising market pay rates for sales talent.
Competitive Pay Levels
- A company cannot operate successfully without competitive pay levels for sales personnel. Consider increasing the annual merit pool midyear to match market trends or granting a “market adjustment” pay increase.
Shifting Buyer Journey
Customers will continue to “shop for” the best purchase experience: lower costs, improved efficiency, and frictionless purchases and in some cases without the assistance of a salesperson, such as using a digital purchase option. Yet, in other instances, buyers might seek greater seller engagement when products and solutions are complex and purchase risks high.
Identify How Buyers Want to Purchase
- Whether customers want “low-touch” or “high-touch” seller contact, it’s the role of the revenue team to identify how buyers want to purchase and then provide buyer journey pathways. Unfortunately, many companies have doomed their future relying on outdated go-to-customer channel practices. Mapping the current and emerging buyer experience will help realign customer contact resources. Consider mapping various buyer journeys; configuring jobs to match the buyer journey, such as the use of sales development personnel, digital chat specialists and a social media contact team; and providing sales rewards for those who help persuade customers to engage with, purchase and continue doing business with the company.
Rise of Virtual Selling
Customers and sellers are adopting new selling/buying modalities using video applications to meet and discuss purchase options.
- Connected technologies, such as video meetings, e-mail and chat, allow customer contact personnel to work remotely. These new selling motions may impact the pay program. Consider resizing the sales force as travel time declines; revising quotas expectations; and, examining the FLSA (Fair Labor Standards Act) outside sales exemption status. Ask legal counsel for assistance to confirm FLSA exemption status.
Recurring Revenue Ambitions
Company strategists are hunting for recurring revenue. Almost all sectors, including software, commercial services and manufacturing, want “services for a fee” revenue rather than transactional revenue. Like your mobile phone, streaming services and at-home software, companies want to win a monthly payment from you. This is also true of corporate sales efforts. “Pure play” companies, such as SaaS cloud services and applications, are born with continuing revenue. However, traditional revenue organizations are seeking to increase recurring revenue using measures such as annual contract value (ACV) and monthly recurring revenue (MRR).
Create Intentional Formulas
- Based on company strategy, sales compensation designers need to create intentional formulas that either favor or provide parity between transaction and recurring revenue. Consider segmenting buyers into transaction versus recurring revenue targets—compensate accordingly; offering incentive payouts based on preferred revenue type; and when seeking seller neutrality, combining “adjusted” recurring revenue with transactional revenue to reward total revenue performance.
Sales compensation plans support company strategy. When market disruptors challenge that objective, sales compensation stakeholders need to update the pay program to ensure ongoing success!