Are You Paying Too Many People?
“I think we’re paying too many people on each sale. We paid 24 people on XYZ sale alone. How do we know how many people we should really be paying?” —CFO, technology company
Companies looking to improve sales performance and profitability evaluate their compensation plans each year in a process as predictable as the annual salmon run—salmon return to their native riverbeds and swim upstream en masse, where bears, eagles and others await their payouts. But while an effective incentive plan is critical, using only incentives can be inefficient and, worse, ineffective. Figuring out who the CFO should be paying can’t start at the comp plan. It requires a healthy swim upstream to understand what is actually happening, and why.
Well-designed sales compensation plans must grow from a sound understanding of target customer segments and the associated sales structure, process and capabilities required to serve those customers. Incentives must also clearly align with the sales growth priorities, coverage model and the results for which salespeople and partners are truly responsible.
Three key factors help the technology CFO determine who should be paid:
- The sales structure should define the roles and responsibilities related to each of the company’s routes to market. This will help inform who should get paid for different customer types (e.g., global or named), sale types (e.g., new, add-on, renewal), products and services, or industry verticals.
- The methodologies for defining sales territories and account ownership influence both who should get paid and how performance should be measured. These definitions will reinforce the sales structure, and inform who should get paid based on sales timing, geographic location and customer classification (e.g., global or named, industry, product or service, etc.).
- The sales process outlines the orchestration of each sales resource in delivering the value proposition to the customer. Understanding the level of effort and influence each role should contribute through the sales process is critical to determine the appropriate credit splits in collaborative and team-based selling environments.
For business leaders like the technology company CFO, determining who should get paid on each sale is just part of the answer. Success in aligning sales credit and compensation with the sales structure, territories and process is often about challenging organizational power, politics and established beliefs, values and cultures about who gets paid and why.
Here are four critical steps to help pay the right people on each sale:
- Be wary of benchmarks and simple answers. Even organizations in the same industry may have different sales structures, territories and processes, requiring distinct approaches to sales crediting and compensation. For the technology company, the “right answer” on who to pay on each sale varied from a single ISR on inbound sales transactions to 24—yes, 24—on the XYZ company deal.
- Avoid the trap of allowing “the XYZ megadeal” or other exceptions to become the rule. The technology company found its greatest discrepancy was on smaller deals, where it was paying three to five people, though it should have actually been paying one or two fewer.
- Ensure the methodology for allocating sales quotas is consistent with the approach for sales crediting. For the technology company, this meant a more rigorous quota-setting approach, while leveraging technology for management of customer movements and changes. These steps helped eliminate instances of salespeople with credit and no quota, and quota with no credit.
- Create discipline and governance for the processes that account for the rules, not the exceptions. Address truly exceptional sales through a separate review process. In the case of the technology company, establishing clearer guidelines helped to improve accountability and reduced rubber-stamping of payouts and time spent dealing with exception requests.
Determining who to pay on a sale can be difficult, and successfully managing changes in the crediting approach even more so. And while many enlightened business leaders will attempt to swim upstream to address this, the “salmon” are snatched out of the water left and right in quick succession. Avoid the dangers along the way and you can reach your goal, but, like the salmon, knowing the route doesn’t guarantee arrival.
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