Understanding different incentive plans and creating a sales incentive strategy.
Early in my business development career, I was tasked with creating an incentive plan for a sales team I had quite suddenly and unexpectedly become responsible for. The team was well-established and had somehow been selling with the promise that they’d receive a commission. The commission plan was undefined and was never implemented, of course, we changed that. There was so much to consider, the team was multi-functional with staff selling products and services and managing implementations with clients. It was also a smaller team, fewer than ten people. The team worked well together, and it was important that I didn’t disrupt the collaboration with the introduction (and implementation) of a new incentive plan.
I learned a lot in that role, and I have had the pleasure of helping other organizations in the years since then to create, update, and implement their own sales incentive plans. While I avoid giving specific accounting or HR advice about incentive plans, I am glad to share some of the basic considerations for a business development leader or a business owner.
Team dynamic – what kind of team dynamic are you trying to create or foster? In sales the options are typically binary: collaborative or competitive. If you create an incentive plan that rewards the team for goal achievement that will bolster a collaborative selling environment. A plan that awards individual performance tends to create a more competitive sales dynamic. There are pros and cons to each, the word “collaborative” sounds nice, but that doesn’t guarantee maximum profit for your business.
Motivators – Money certainly does motivate people, but is it the primary motivator for your sales team? If your team enjoys a moderate base salary and their commission serves as an added bonus, money may be less of a motivator compared to goal achievement. If your sales team is 100% commission based, they know their hustle directly correlates to the check they take home.
Products and services – Be sure to consider what you’re selling, this sounds obvious but has a huge influence on the percentage of revenue you’re sharing with your team. If you’re selling services for an explicit contract amount, one-time to your customers, that’s easy! If you’re selling products and services, you’ll need to consider the average length of a customer contract, deal value, customer retention or rescission rates, contract termination language, and profit margin.
Incentive implementation – How frequently will you pay out your commissions – weekly, quarterly, annually? Who is responsible for sales reporting and commission calculations? Are you withholding taxes? Are your paying commissions to hourly or salaried employees (this has considerable administrative implications in some states)? How do you handle commission disputes and clawbacks?
Creating a new incentive plan, or evaluating an existing plan should include the following considerations – and if this seems like a lot to take on, help is available and well worth the investment.
- Salary only, commission only, base plus commission, or base plus bonus
- Accelerators and decelerators
- When to pay commission
- Paying on profits or revenue
- Setting sales goals
- Managing clawbacks and disputes
Not all plans have to be structured, for a less formal, more creative approach check out these ideas from Small Business Trends.
