November 09, 2016
by Mark Donnolo, Managing Partner, SalesGlobe
High performing sales organizations know the importance of their sales incentive plans and work diligently throughout the year to design, communicate, tweak, and evaluate those plans. Here are the top three sales compensation challenges for 2016 from a recent survey conducted by SalesGlobe.
#1. Setting Effective Quotas
While arguably not completely part of sales compensation design, setting effective quotas tops the list of challenges year after year. In my experience, about 30 percent of companies do not have quotas ready at the beginning of the year. This is alarming. For compensation to be a good communication tool, sales reps need clear direction on what the company wants them to do.
The survey also found that companies continue to set quotas based on historical sales and top-down financial requirements, neither of which are best practice because they do not take market opportunity into account. However, research indicates trends moving toward incorporating total market opportunity and account portfolios to determine a goal.
In addition, the survey found that less than half of the participants (48 percent) report that at least 50 percent of reps are achieving quota. This is significantly lower than prior surveys, which average 60 percent of reps achieving quota. (I recommend that 50 percent to 70 percent of the organization should perform at or above quota.)
#2. Plan Complexity
Plan complexity is a constant challenge every year for the majority of survey participants and clients. As businesses and solutions have become more complex, the risk of putting too much in the plan has increased as well. While the early pioneers of sales compensation may have paid simply on revenue or units sold, modern plans may not only pay on revenue, units, or profit, but also on the type of revenue, the type of customer, product and service mix, growth from protecting base revenue, growing current customers, winning new customers, and whether the sale was booked or billed. The possible combinations can make a rep’s head spin and lose direction.
To create a clear message, an effective sales compensation plan will typically have three or fewer performance measures. What’s more, no measure will carry less than 15 percent weight of target incentive. By focusing the measures, the organization can increase the focus of the person in that sales role.
#3. Managing Cost and ROI
Managing cost and ROI continues to be a challenge for 42 percent of participants, up from 37 percent in in previous surveys. In fact, most C-level executives want to know the answer to two questions:
There are many ways to develop your company’s sales compensation ROI equation. Your end result will depend on what is most important to your company. To keep it simple, companies have defined their resource costs as base salary plus incentive pay excluding benefits, or actual total compensation. Sales compensation is one of the single largest expenses a company incurs. Maximizing the impact of the investment is critical to gaining a competitive advantage.
More Challenges on the Radar
Other top sales compensation challenges in 2016 include:
What are your top challenges?