Paying for Sales Results

By Karen Jorgensen

Sales is the easiest part of the business model to incentivize. Despite this apparent ease or maybe because of it, it doesn’t take much experience to see that sales is the business function that most decision makers incentivize poorly.

The dynamics of sales continue to change even faster than changing times. With a global economy, technological advances, business expansions and mergers, the sales function is constantly adapting to new ways of operation. Cell phones, point of sales computers and telemarketing improve the sales effort and require new ways of doing business.

The sales function does not operate as independently as in the past. In fact, the sales function must work in close relationship with customer service, market research, engineering and advertising. A good salesperson knows how to expedite products and has important relationships with the company.

Client/Customer relationships have become key to the sales function. The emphasis in many businesses has shifted to a relationship sell. The sales person must nurture relationships with existing customers who aren’t ordering at the same time he or she is working with the customers who are ordering.

How Do You Compensate Sales Performance?

Clearly stated objectives are critical to developing sales team compensation. Do you want the compensation plan to encourage increased volume, specific products, profitability, new business, relationships or retention? The objectives of a sales plan should change at least yearly based on market opportunities, competition, new products and technology. Prior to developing any sales team incentives, the objectives must be clearly identified and agreed upon by all key executives.

Pay philosophy must take into account the technical know-how of the sales personnel, as well as the difficulty of the sale, training and risk of the business. A small business or a start-up is going to be riskier for a salesperson. An unknown product from a new company is harder to sell.

Smaller companies with less established products tend to pay sales personnel higher base salaries. Bigger, more established firms have lower base pay. The lower pay of big companies is offset by training, benefits, promotional opportunities, a known product and service, and more perks.

Pay philosophy also must establish who is the sales team. What is the role of marketing, customer service, advertising or installation in the sales process? Are there non-sales functions that require time from the sales team, such as maintaining relationships, servicing accounts or providing technical information?

Individual sales goals create competition, not cooperation. A company needs to evaluate how much reward or incentive should be tied to the total team. The trend in most industries is toward more team-related sales incentives.

Simple Sales Goals

Competitive pay practices are an important factor in setting sales compensation. Researching what is happening in the industry, the expected average profits of other companies and predicted sales growth is very important.

In designing sales incentives, sales personnel input can be very valuable. Discussing goals and expectations with sales personnel also can help overcome their resistance to change. Of all types of work teams, the sales function understands reward processes the best. These team members usually have excellent input into what needs to change, how measurements can be improved and what team expectations need to be rewarded.

A sales incentive questionnaire can be used to gather information from the sales force. This can be done one-on-one or in a focus group. All members of the sales team should participate.

When rolling out a new sales plan, we recommend the new plan be designed to be more lucrative if goals are met than the old plan. We also feel that if you obtain sales input during the research phase, the actual rollout and acceptance of the plan will be easier.

Permission is needed from Lighthouse Consulting Services, LLC to reproduce any portion provided in this article. © 2014

JorgensenHR is a BestPRACTICES human resource solutions firm that helps clients create additional value in their business or organization through well-designed, customized human resources management solutions. These include our BestHRSolutions products and services for HR outsourcing, training, affirmative action, investigations, policies, compensation, recruitment, HR assessments, and We Want to Know Hotline. For more information, please contact Linda Harris at (661)600-2070, email her at [email protected] or visit the company website, http://jorgensenhr.com/

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