Business Owners Never Go Broke Because They Sign Big Sales Commission Checks
One of the benefits of writing blogs for years is the opportunity to revisit earlier releases for relevancy and adjustment. I published a blog in 2017 about sales commissions and it remains one of my most read posts.
“Owners never go broke signing large sales commission checks.”
I regularly repeat this phrase to business owners, and I absolutely believe it to be true. However, markets change, as does context. The market impact of COVID to businesses will be studied for decades, and hopefully the pain will never be repeated. It’s impact to salespeople has also been dramatic, from job loss to unforeseeable opportunity. For salespeople on either spectrum this occurred without notice or effort.
If your business enjoys a blue sky with above normal growth opportunities, designing appropriate compensation strategies has become extremely difficult. But the compensation philosophy for Sales Reps remains the same: Compensation should match the risk, work level, relationship development responsibility, and overall knowledge and skill sets required to close deals that generate good revenue.
In today’s hyper economy, your salespeople may be over benefitting from the economic boom and your commission plans may need to be adjusted.
Adjust Plans for Different Economies
The desired outcome of a great commission plan is simple: make both the salesperson and the owner very happy. Here’s how to build a solid (and successful) commission plan in today’s economy.
1. Re-evaluate your sales process.
Have today’s market opportunities changed the demands of your Sales Rep? I have seen businesses where Sales Hunters now only need to answer the phone and are securing big deals. Today’s sales activity may no longer match the expectation of reward matching risk. Re-evaluate and adjust as needed.
2. Safeguard that your Comp Plans still match your Sales Plan.
A sales strategy of “Go with God and come back with money” is a disaster for a small business. Pursuing new pots of gold could lead your business astray from your strategy. Remain focused on the markets, products, and customer size that match your Sales Plan. Don’t allow the Rep to create their own Sales Plan.
3. Set the quota levels aggressively but intelligently.
Even 18 months after the start of COVID I continue to set mid-length sales targets of one or two quarters. Market variability remains too great for me to be comfortable that the revenue target is balanced between effortless and unachievable. Be aggressive but ensure your compensation plan continues to focus on satisfying your top 20% revenue performers.
4. Ensure your commission plan is fully aligned with your Sales Plan.
What’s worse than having reps sell the wrong things? Not rewarding those reps who sell the right things! Not only should you build your commission plan to incentivize all your growth areas, but you should over-incentivize your biggest company priorities.
5. Hire sales talent then focus on connectivity.
With the economy offering significant opportunity, companies are hiring as many salespeople as they can find. However, hooking quality Sales Reps is very difficult and their risk of failure is much greater as most work remotely and know little about your company and culture. Hire talent and then focus on connecting them closely to your key company leaders.
The best way for a business owner to get rich is when salespeople also enjoy the rewards of sales success. But you must ensure the rewards match both the required work and your company goals or different problems will develop.
Cut large commission checks with confidence on deals that bring the right results, motivating your top performers to be focused and successful. You must think big and plan big to get big!
Could you use some help developing or revising your sales comp plans so that they benefit everyone? Contact me at firstname.lastname@example.org for sales leadership consulting and sales management.