Prepare to provide ongoing guidance to revenue leadership. Invest in your self-development. You may need to provide mission-critical help to your current revenue team or to sales leaders at your next corporate job.
Do you contribute to sales performance improvement? You may be in sales operations, HR/compensation or finance. If so, sales compensation will find you. You can’t hide from it. Eventually, it will make it to your inbox/desk/message log. Sales performance professionals need to ensure sellers have aligned, exceptional sales compensation plans.
Let’s start with the basics. First, we must divide the seller population into two categories: producers and sales representatives. What’s the difference? You know the producers: They are full commission sellers, whom we often encounter in our daily lives, including real estate agents, mortgage origination brokers, life/property insurance agents, car salespeople, and financial advisors. In the business-to-business (B2B) sales world, this group includes brokers, manufacturers’ agents and traders. When compared to the total population of sellers, producers represent a small portion of total sales headcount. Sales representatives are far more numerous.
Okay, who are the sales representatives and how do they differ from producers? Think of producers as being their own business. They create revenue with their known contacts and split the earnings with the “house” (their employer), either as a 1099 worker or a W-2 employee. Meanwhile, a sales representative represents a company’s products to a target population of buyers. Sales representatives provide the connection between the company and its customers. Often, B2B buyers have long-term repeating needs or are making major purchases. Or both. In these cases, the sales representative provides guidance and support to the buyer.
We know that sales leadership uses sales compensation to reward sellers for sales success. Producers are paid one way and sales representatives another way. Most sales performance professionals work with sales representatives. Frankly, producers need little managerial oversight. As expected, producers are usually paid a full commission with no base pay. The company and the producer split the revenue (or profit) earned. These commission rates are unique to each industry and seldom change. (Of interest, recent and new real estate market entrants are attempting to gain business by offering discounted commission rates. Successfully changing producer commission rates is a rare occurrence.)
Meanwhile, sales representatives have a completely different pay model as compared to producers. Sales management rewards sales representatives for successful persuasion. Leadership establishes a target total compensation amount for each selling job—key account manager, named account manager, territory sales personnel, and a variety of pre- and post-sales support talent. The target total compensation amount is divided into a base component (often sitting within a salary range affecting each incumbent’s base pay amount) and a target incentive amount. The payout of the target incentive amount can be zero to as high as 2x to 4x the target incentive amount for outstanding performance. (The norm leverage is 3x the target incentive for outstanding performers for the ~90th percentile performers.)
Sales operations professionals live day-to-day with the success (or failings) of the sales compensation plan. They have these continuing accountabilities.
Let’s examine three classic HR roles and their intersect with sales compensation.
Finance contributes to successful sales compensation programs with the following accountabilities:
As a sales performance professional, consider these sales compensation action steps.
Step #1: Get Educated. Sales compensation is a learnable subject. Read books. (Let me humbly recommend my bestseller: Compensating the Sales Force, 3rd Edition.) What about e-learning? Contact WorldatWork.org to purchase e-learning classes in sales compensation.
Step #2: Establish Sales Compensation Charter. Let everyone know their role: sales leadership (plan owner), sales operations (day-to-day plan manager), finance (administration and costing), product management (product strategies), and HR (market pay data and process lead).
Step #3: Catalog Current Plans. Find out what you have. Create a spreadsheet listing all jobs and their sales compensation features.
Step #4: Produce Standard Assessment Analytics. Work with sales operations and finance to establish a set of plan assessment analytics produced quarterly. Use graphics to display payout alignment and dispersion.
Step #5: Publish Sales Compensation Principles. Craft and publish a guide to sales compensation principles to use at your company. Use a task force to develop the guardrails and objectives for sales compensation design, regardless of division or global location.
Step #6: Manage the Annual Review Process. Lay out a three-month process to review the current plan. Use a task force to design/update the plan for the next fiscal year.
Step #7: Communicate With Impact; Ensure Adoption. Script the roll-out communication program, which the field sales managers will present. Provide training to this group. Ensure adoption of practices. Address any new-year start-up hiccups.
Step #8: Monitor and Upgrade as Warranted. Hold regular quarterly reviews of the compensation plans. For any midyear changes in strategy or job functions, update the affected sales compensation plans. Finally, monitor for any unexpected issues. Provide a review and escalation process to address these midyear challenges.
Sales compensation is a high-impact management program. If you prepare well, sales leadership will embrace your competency and insights.
Sales compensation is an important, highly visible program. Whether you pursue it full time, are assigned to a task force, or need to handle day-to-day inquiries, you are a valuable contributor when you help make the sales compensation program function to its fullest potential.
Learn more about Alexander Group’s sales compensation practice.
David Cichelli is a revenue growth advisor for the Alexander Group. Connect with him on LinkedIn.
Sales Compensation Resource Center
Sales Compensation Resource Center