Sales Incentive Plan Design – Gearing for Growth

Growth is the key ‘buzzword’, but it's an old mantra. It is a critical mission for most businesses, whether in response to a company buyout by new investors, challenge from new competitors in the market, opportunities from new technologies, or demand from shareholders. Ultimately, the long-term goal must be to grow both in turnover and profitability.

How to grow - new products or services, new marketing strategies, new pricing architecture? Critical in delivering this agenda is the salesforce. Many incentive plans get left behind and remain unchanged and unchallenged as sales strategies change. Companies wonder why the salesforce is not as motivated as the top team and why new ambitious targets are not being achieved. With a greater urgency for growth is a need to question what plan design is going to deliver the right selling behaviours.

This drive for growth necessitates a review of sales commission/incentive plan design. The areas for review are in three categories - opportunity, structure and targets.

Opportunity
If there is a requirement to change gear in selling behaviours, it is important to review the on-target incentive opportunity. This is dependent on the role and those seeking new logos or account growth. Winning new business is tough, so why would a "20% of base pay" opportunity be sufficient to motivate a new business hunter when 40% or 50% would move the dial? There is a need to align role with on target incentive opportunity.

Structure
Are your plan structure and payout frequency right for growth? To promote growth, you need high rewards for overperformance and more regular reinforcement of performance. This must be balanced with financial risk, and can be achieved by making changes to accelerators e.g. increase accelerators for above quota performance, the removal of hard caps and the introduction of modifiers for key new products and services that are critical to your growth strategy. If recurring revenue or long-term contracts are critical to the strategy, multiply the value of these sales relative to quota. For new products, you can also use short term ‘Spiffs’ to prove the impact of incentives before incorporating modifiers into the main plan. And if success and growth rely on team performance, add in a team measure to the plan.

In terms of payout frequency, think about the opportunity to reinforce positive selling behaviour. To inject more selling urgency, increase the frequency of payouts. So, if you pay out annually, think about quarterly payouts. If you pay out quarterly, think about what elements could pay out monthly. There is a need to generate energy and dynamism behind the growth strategy. Again, this must all be balanced with financial risk.

Targets
In order to create a successful growth-based sales incentive plan, targets/quotas need to align with the strategic ambition, but they also still need to be achievable. Will the targets be set using a ‘top down’ or ‘bottom up’ approach, or a combination of both? Getting the targets right is fundamental to a successful sales incentive plan.

In addition to the above, there are some other critical dependencies to a successful shift of behaviour to support growth. These include the salesforce having regular and accurate sales data to reinforce positive performance and address poor performance. Furthermore, leadership – Sales, Finance and HR – need to be on the same page so that there is universal buy-in to the new approach and that it is communicated effectively to the salesforce.

Growth depends on sales incentive plans with the right gearing and structure and MCR is here to support you. 

If you would like a free one hour review of your sales incentive plans, please reach out to either jon.clark@mcr.consulting 

or vicki.badham@mcr.consulting (MCR's Sales Reward Practice Leads) or email us at hello@mcr.consulting for more information.