Sales Compensation for Expansion Stage Companies
October 4, 2010
At the expansion stage, one particular topic seems to frequently trip up companies’ sales team management. How should sales teams be compensated and what are the many variables that can sometimes complicate that pay structure?
Through my experience providing marketing and sales support to OpenView Venture Partners’ portfolio companies, I’ve seen management sometimes spend too much time developing a complex pay structure and not enough time forming a quality sales team and implementing methodologies that ultimately help move the company forward.
The following tips will help simplify the process. That way, you can be sure that your sales team is motivated and fairly compensated, and you’ll have more time to make the bigger picture decisions that take your company to the next level.
Keep It Simple
When a sales person has to do complex math to determine how they’ll be paid that month, it means the system is too complicated. Too many variables make compensation confusing and it forces sales people to think more about how they’re paid rather than the work they’ll need to do to get paid.
In a great article on Entrepreneurship.com, Jack P. Smith advises companies to keep bonus and commission calculations simple enough that sales people can calculate them in their head. If that’s the case, your sales people will have a clear understanding of how much they can make and they will spend more time executing a plan to reach those numbers.
Have Monthly/Quarterly Targets
It’s important for sales people to have long term goals, but setting shorter monthly and quarterly expectations allows for your sales team to blossom in a targeted environment. With every short term goal they hit, they’ll be closer to reaching their long term numbers.
Great sales people thrive in those goal-laden environments and it will ultimately allow your company to do the same.
The suggestion above must be taken in concordance with the following advice. While it’s important to have monthly and quarterly plans, it’s equally essential to tweak them as you go. It can be very difficult to predict or establish the correct sales goals on your first try, so you have to be prepared to adjust them based on the results you’re seeing.
Forecasting is not an exact science and if your sales predictions or goals seem unrealistic after a few cycles, don’t be afraid to adjust them. Business and market conditions can change quickly and that agility will allow for your sales team to adapt and respond to those conditions.
Remove Performance Metrics From The Plan
Also known as “leading” indicators, performance metrics should be kept out of any sales compensation plan. Any metrics you have that lead to outcomes should be included in the job description and paid through the sales person’s salary.
While those leading indicators can be the most important metrics for companies and their sales people to focus on, they are part of the job and a responsibility of the sales person. They are not something that should be factored in to a sales compensation package.
There are certain times when a company may find it necessary to pay an individual more in the early stages of its team expansion. That’s fine, as long as the pay is earned.
Offering a higher percentage of commission as an incentive early on can be a good way of motivating the sales person and ultimately driving sales. But the increased pay needs to be warranted and ultimately needs to be mutually beneficial.
Those are just a few basic concepts to follow when considering a compensation structure for your sales teams. The idea is to keep it simple and save time for some of the more important issues that present themselves to expansion stage companies.