Sales Operations: Compensation Structure
“...our research shows that the sales experience is one of the top drivers in customers’ purchasing decisions. And best practice has revealed that companies focus as much on the rep experience as on the customer experience.” (McKinsey, 2017).
Most people are risk averse, but salespeople are a different breed: Most tend to thrive in big-risk, big reward scenarios, which is why compensation is one of the biggest influencers of sales performance in B2B.
When compensation is well-designed, sales reps are rewarded appropriately for doing the right things and for the right prospects. But poor design will reward the wrong risks, eroding profitability and customer satisfaction.
Sales Operations can play a potentially large role in the discussion, offering critical information and insights into what is working and what is actually doing more harm than good.
Along with HR, VP of Sales is responsible for:
- Employee compensation scheme
- Methodology for updating the compensation structure
- Monitoring employee satisfaction
- Rising ROI
Of these, sales operations is most involved with ROI and the methodology for updating the compensation structure. In the next 400 words, we will discuss how as a Sales Operations leader you can elevate your compensation and incentives, resulting in dramatic performance improvements.
Sales compensation plans can have an important role to play in overall growth, and almost every company with a sales force should take a more strategic approach to designing their incentives plan.
One of the greatest challenges with incentives is to align three stakeholders around value:
- Sales people
Of these three, sales people are the most often overlooked, which is ironic considering we are discussing compensation for Sales. Most organizations calculate commissions based on revenues. This is a decent starting point, but it could benefit from a deeper look into the real behavior the plan reinforces.
Let’s start with sales people. How do we reward a land-and-expand strategy? Many sales organizations separate sales into two groups, one focused on the risky endeavor of acquiring new customers, the second on expanding relationships. But we find this system is in direct conflict with land-and-expand. It rewards volume, not value!
There are multiple solutions that sales operations can bring to the table, but a pure compensation solution is to create kickbacks for future buys while reducing the upfront reward. Increase the payoff for landing those high-value customers, and salespeople will start placing their bets more carefully.
Systematizing Compensation Improvement: Annual Isn’t Enough
One of the most significant differences between the Sales Operations of yesteryear and this year is timing. These days, change is on an accelerated schedule; people lose interest more quickly; they expect a more iterative and gamified approach, particularly salespeople.
Create a system for increasing the rate of change:
- Set-up more frequent evaluations of sales performance. During these meetings, discuss any feedback you have received from sales teams. Do they feel that incentives are fair? Are they challenging but rewarding? Check any fluctuations in key performance indicators, such as close rate, time-to-close, retention, etc. Present your findings, hypotheses, suggestions.
- Help sales people understand the compensation structure immediately. Too often payoff is far removed from the time of sale, and so much of the motivation for change is lost. Provide convenient solutions for calculating incentives immediately, and ways to measure possible kickbacks in the future. Look into Net Present Value calculations. This will give an estimate of what the deal is worth today.
- Research Compensation Management Solutions. Technology can be a useful investment to drive real-time assessment of the effectiveness of your compensation programs.
By making these changes, you are taking a more proactive role in the evolution of the sales organization, helping the VP of Sales and HR understand how compensation is impacting performance and the execution of the corporate strategy.
Continuing Research Opportunity
Our next blog will be the third in our series as we explore how Sales Operations can impact and contribute to Sales Targets — a) Sales Quotas; b) Territory Alignment; c) Lead allocation management
As we continue to build upon the framework of Sales Operations by size and market, your input is valued. Please submit any information on your sales operations practice to firstname.lastname@example.org.