To Boost Revenue, Change Your Sales Compensation Plan

sales compensation planThe New Year always brings new hope. 2008 was rough for many companies, and the cost-cutting will continue well into 2009. While cost-cutting is necessary for many companies, don’t focus all your efforts on cost-cutting: Renew your efforts to grow (or maintain) the top line.

How do you accomplish this in a recession?

If you’re a B2B company, the quickest way is to improve your sales performance. Most B2B companies under $100 MM in revenue are sales-driven. In many, a handful of top reps bring in the lion’s share of new revenue each year.

Improve your sales reps’ performance by 10% and viola–increased revenue.

It’s not that easy, but it’s not as hard as you think. If you don’t have budget for sales training, use the proverbial carrot to perk up your sales force. Motivate them! Focus on their emotions.

The two emotions that drive most sales reps are fear and greed. And the easiest way to motivate your sales reps using fear and greed is to change your sales compensation plan.

Let’s take a quick look at each emotion:

Fear: Fear is a strong motivator for weak sales representatives.  If a sales rep fears for his job, he’ll work harder. Some tops reps also fear failure, like failing to “win” the top spot or making President’s Club.

Greed: Top reps are highly motivated. They crave recognition and money. As Gordon Gekko said, “Greed is good.”

How to Change Your Sales Compensation Plan to Motivate Reps

No two companies are alike, so think about your situation when considering a new compensation plan:

  • Industry (business-to-business or business-to-consumer)
  • Sales cycle
  • Deal sizes
  • Sales type (group sale, consultative, one-on-one)
  • Industry knowledge
  • Inbound lead quality

Here are two different scenarios with ideas to get you started:

Company A

Sales Team Makeup: The company has many reps, each handling a small and relatively simple sale. Each rep accounts for a small percentage of total revenue.

Goal: Create small incremental improvements across the majority of the reps.

Ideas:

  • 1. Offer bonuses for reps finishing x% over their 2008 sales. This method is successful because of its simplicity. Reps can easily calculate and visualize their goal.
  • 2. Give your top performers the opportunity to increase their commission rate in exchange for reducing some of their guaranteed compensation. This provides a greater upside and appeals to their greed.
  • 3. Increase the minimum booking requirements for less successful reps. Create an action plan for under-performance, and establish negative consequences for missing minimum targets. This plays on fear. It’s better to train poor-performing reps, but this is also effective.
  • 4. Develop sales contests between small groups. Use small groups to keep most reps excited–everyone has a chance to win.
  • 5. If you’re hesitant to fire under-performing reps, you might structure their compensation as 100% commission.

Company B

Sales Team Makeup: The company has a handful of seasoned reps handling a complex sale. The top reps generate the majority of the company revenue.

Goal: Inspire the top performers to reach new heights.

Ideas:

  • 1. Create a tiered program where reps earn a lower commission percentage for the first sales dollars and then increase their commission percentages (for all sales) at defined target points.
  • 2. Accelerate commission % in excess of quotas.
  • 3. Offer to switch compensation structure to 100% commission, but with a higher commission percentage.
  • 4. Offer a cut of the overall company profits as a bonus for achieving the top milestone.
  • 5. Offer stock options (if you have a company plan) for achieving goals.

You will gain your sales reps’ full attention when you announce that you’re changing their comp plan. Some will fight it, so plan your changes carefully. You might even seek input from some of your top (and bottom) reps. If you work together to align everyone to the top-line goals, you’ll have a greater chance of exceeding them.

After you create your new plan, support your reps throughout the year with tools and good sales management. This alone could produce a 5% to 10% increase in your top line.

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