Compensation schemes which motivate

Now you have your targets in place you can build a sales compensation scheme to reflect both the KPIs and the behaviours required to achieve those targets. This will usually be a blend of a fixed amount (salary) and a variable amount (bonus or commission).

In recent years, often driven by economic turmoil, it has become more common that packages are entirely variable so there is no basic salary; if you don’t sell you don’t earn.  While a lot of companies see this as a way of reducing their financial exposure it can have the opposite effect as people need enough money to live and if they are not earning it with you they will turn their focus elsewhere.  A secondary factor to consider is that if people are entirely dependent upon making sales to live it may distort their judgement and in some recent bad cases this has led to the various mis-selling scandals of recent times.

I believe employees will deliver their best performance when they are rewarded properly and with sales people this involves paying a reasonable basic salary whilst still leaving them hungry enough to put in the extra effort to exceed their target.

I am often asked what the difference is between bonus and commission and strictly there isn’t one in so much as they are both variable amounts which correlate directly with the amount sold by a sales person.  Generally, a bonus will be a lump sum such as a fixed amount per unit sold and commission is generally a percentage of revenue or margin.  In the latter case, if the sales person gives discount this will reduce their commission whereas a bonus would be unaffected by discount.

Another approach to paying variable compensation is based on a bonus pool created in line with overall company, or perhaps division or branch office, profitability.  The pool is then distributed according to pre-determined rules.  This approach is valuable if staff other than direct front line sales people, are involved in helping to win deals.  This would cover situations where sales is supported by functions such as; technical engineers, pre-sales support, technical & proposal writers, etc.

There are undoubtedly many other approaches but the core philosophy is to have a fixed sum plus a variable amount and the variable elements must be tied directly to the targets that have been agreed with the individual sales person.

While there are no hard and fast rules about the ratio between fixed and variable amount there are often trends or norms for particular industries.  Another factor is geographic location where basic salaries and often complete packages include a premium for London and other major cities.  Recruitment consultancies are a good source of advice on this but a word of caution, many will want the salary to be as high as possible for their own fee earning purposes.  As a rough guide packages will typically range between 1:4 to 1:1; basic to variable.

The primary purpose of a compensation scheme should be incentive and reward but I have seen plenty of situations where the scheme is used by the employer to find ways to reduce the amount paid.  I have also seen schemes where the sales person has to make sufficient sales, usually determined in margin terms, to cover their basic salary and employment costs before their sales efforts will go towards calculating commission or bonus.  No other class of employee has to cover their costs so why sales people?  These approaches are disingenuous and will ultimately lead to a lack of trust which will probably also reduce sales achievement rather than increase it so the approach is in effect counter-productive.

Tips on creating variable compensation schemes:

  • The simpler the better.
  • Ensure the scheme triggers the behaviours the business wants from the sales people.
    • If the overall objective of the business is to grow revenue then the scheme should be based on revenue and should allow the sales people to give discount within a defined range.  The sales manager should have the authority to offer further concessions again within guidelines.
    • Alternatively, if the business objective is to improve margins then the commission scheme should be based on margin which means any discount given will reduce the commission.

These are just two common examples of how a commission scheme should be tuned to align with the KPIs and overall company objectives.

  • Make sure the compensation scheme is directly tied to the agreed targets and that KPIs and other measurements are aligned between targets and the scheme.  This creates a logical link between the arguments that supported the creation of the targets and the compensation scheme; following the philosophy of SMART objectives will provide a good framework.
    • Consider the pace and rhythm of your business and market.  For example, if your business is seasonal you may wish to tune the compensation scheme to incentivise increased effort to match.  Alternatively you may view it the other way around and wish to apply additional incentive when the market is traditionally slow.
    • What if a sales person misses their monthly or quarterly target but makes it up later in the year?  There isn’t a standard answer to this but it must be considered when designing the scheme.  If achieving period targets is crucial for the business then, provided the sales people know this, it is fine that they lose commission for missing the period target.
    • A scheme based on performance bands, each giving increasing amounts of compensation, will provide further incentive for sales people to perform and will also be fairer to the sales person with a difficult customer list.  This is better in terms of motivation than an all or nothing approach.
  • Leave some headroom to add special one off bonuses when, for example, the company is running a special promotion that will require additional work over and above normal activity.
  • Consider overrides for sales people.  If a sales person will earn £X by achieving their target then an override e.g. extra 10% on all sales made beyond target, will create additional Incentive to go beyond.
  • Sales managers should be compensated through override on the achievements of their sales people.  An example override system would be; for a team of six sales people, the sales manager would get equivalent of 20% of the commission earned by each sales person that achieves or exceeds target.
  • Ideally, a sales manager should not own a sales territory but if they do, the majority of their variable compensation should come via the achievements of their sales people rather than their own selling efforts.

In summary, compensation schemes should be designed to create the required behaviours and provide sales people with the incentive to do what is required to achieve their targets.  If those targets are directly tied to what the company needs and measures, successful sales people => successful company.  The final piece in the jigsaw is to ensure the sales manager’s targets, objectives and compensation are directly tied to the success of their sales people.  Everyone will be singing from the same song sheet, pulling in a single direction, focused on a common objective.

Maintain margin without having to say ‘No’!

Sue Barrett’s post on LinkedIn entitled “How to stand your ground and hold your margins” provides useful hints for the sales person in front of their customer, but could the dilemma be avoided through use of appropriate targeting?

The way in which commission schemes are designed should take full consideration of the behaviour they will encourage. As a general rule commission earned should be based on two basic principles:

The scheme should motivate the staff to modify their behaviour such that their efforts are fully aligned with the objectives and goals of the company.

  1. The scheme must be seen to reward people for their efforts and most importantly, reward them in line with their relative contribution.
  2. If commission is earned purely on revenue, what incentive is there to not give away discounts, which in turn impact on margin?

Likewise, if the sales force are not well informed on how prices are calculated and the underlying cost structure, then the impact of discounts and give-aways on margin will be less well understood.

Why might it be beneficial to use margin rather than revenue as the incentive?

  • What keeps a business fed is the margin so by paying against margin you focus the sales people on what the business wants.  When they are doing their deals they will be more appreciative of a discount’s impact on profitability as it also hits their pocket.
  • Let’s assume you make 10% gross margin; so 10% of margin will pay the same as 1% of revenue. 10% is much more motivational than 1% even though it pays the same.

If you’d like some help with designing effective commission plans, and helping your team improve their negotiating to reduce need to discount, why not give us a call.

Customer engagement for win-win deals

Customer Engagement

If your customers are slow to make decisions and your pipeline forecast is forever moving, we can help you.

If your sales force are submitting bids with a low uptake so you feel you are just providing free consultancy, we can help you.

Markets are changing and customers have more opportunities for research before they buy, consequently the sales force has different challenges in order to engage with customers. Gaining insight into your Customer’s world and thereby understanding how you can deliver greater value than your competitors can be key to how you approach your target market.

We have helped companies in various sectors re-focus their propositions and markets for greater customer engagement, leading to more new and extension business. This also assisted the sales management to obtain more reliable forecasts.

“Working with Performative greatly improved the quality of engagement with potential customers and our ability to forecast outcomes from those.” MD, Mobile Technology company.

Feel free to call us for a confidential discussion.

shorter sales cycles, new customers, more business, increased profilts, better cashflow
time allocation to team members

Challenges of the Sales Leader

The Executive as Sales Manager:

This is specifically focused on the executive, who does not have a sales background but who does have to manage the sales and selling functions of the business. This is a typical scenario for many owner managers but is also the position when someone from a different discipline, for example the FD, assumes responsibility for the sales and selling operations. One obvious thing to observe about this person is that as well as managing sales they will also have another job to do as well; CEO, MD, FD, etc.

A principle that we have long subscribed to is that you can lead or supervise people but you can only manage processes. Attempts to “manage” people typically descend into supervision and this in turn tends to focus on monitoring the quantity of activity whereas what matters is the quality and value of the outcomes achieved by the activity. Good sales managers know this and spend most of their time training and coaching their sales people to achieve better outcomes rather than supervising them to produce higher volumes of activity.

The key to effective leadership of any sales operation, regardless of whether the leader is experienced in sales and selling, is to have in place a well-defined sales methodology and a complete set of associated selling processes. The methodology represents the go-to-market strategy while the processes are the tactics used to implement that strategy.

WHY IS THIS KEY?

allocate time to each

Make time for coaching individuals and the whole team

The processes define the stages and gates that need to be followed throughout the lifecycle which sees a suspect become a prospect, then a customer, then a user and eventually an advocate. The processes ensure there are standard outputs from the mundane routine parts of the job. Those outputs must benefit both the company and the sales person. The sales people need to be trained in the use of the processes and progress is then easily monitored by observing how potential deals move through the stages of the process.  Such movement should be driven by adherence to the “rules” of the processes. This removes the need for the executive to try to manage (in fact supervise) every individual action and item of activity by every sales person – now, management can focus on exploring the exceptions.

Because the executive will be wearing a number of hats, it is important to allocate regular time slots throughout the week which are reserved exclusively for managing the sales and selling functions.

Here are a few tips to guide the executive as sales manager:

  • Design the commission plan to encourage the behaviour and results required to meet the business goals.
  • Create a sales methodology and associated selling processes.
  • Communicate these to the sales people ensuring they understand why they are expected to follow them.  The objective is to create an environment which permits intelligent adaptation within a defined environment.
  • Induct new people and train existing people into the methodology and processes
  • Reinforce this by managing people via the processes – make your expectations clear and consistent, e.g. if you ask for weekly reports, ensure you read them and respond.  Be alert to anomalies which may indicate coaching is needed.
  • Monitor progress through a dash board consisting of a few KPIs, pay attention to the exceptions and act on them.
  • Set aside regular times when you are in sales manager mode and publish these
  • Make time to coach individual sales people
  • Make time to visit prospects and customers with sales people, not on your own
  • Have a sales meeting with the whole team at least once per month – discussing account issues and tactics helps everyone learn
  • Speak to each individual sales person regularly and if they are remote do this by phone
  • If you feel you cannot do any of the previous points then bring in help, either a dedicated sales manager or part-time interim assistance to cover specific areas for you.
sales ability vs. sales experience

Which is more important – sales ability or sales experience?

The answer in most cases is probably both, but what if you have to choose?  We would argue that capability over experience should drive recruitment decisions and these are the main reasons why:

  • Experience is only a record of the past whereas ability is a signal for what is to come.
  • Is 10 years’ experience really that or is it just one year 10 times over?  During interview you need to look for evidence of progress and development through the period. Confirm your understanding while taking references.
  • Experience of what and in what market? Is their experience absolutely relevant to your proposition and market?  Beware a candidate who may look ideal because they have worked for a company doing similar things to you and in a similar market but this does not allow for what can be significant differences in style, culture and principles.
  • Equally as important as ability are attitude and aptitude. It is common that sales people are recruited for experience and skill but when they don’t perform it is often attitude that causes them to be terminated.  So, do it the other way around; recruit for ability, aptitude and attitude and you are less likely to be disappointed.  Tools from such as Thomas International support this assessment process during recruitment.
  • That same suite of tools can be used to support development and to support a structured appraisal process. This drives individual training and development plans and provides an important and valuable input to on-going development programmes.
  • All new recruits, no matter how experienced, are raw material that you have to mould through a thorough induction and on-going development if they are to deliver at peak levels for you and themselves. If you do not mould them, they will mainly remain the same person that joined you; continuing to do what they have always done and in the same old way.
  • Finally, there needs to be a direct relationship between what you expect of them and how you reward them. The variable element of a rewards package is designed to drive people to perform as you require and as such has an impact on behaviour.  Review reward schemes frequently to ensure they match the current business needs.
Deceuninck, customer creation, conversion ratios

Deceuninck

The Outcome:

A pro-active new business hunting capability with higher conversion ratios thus exceeding the previous years numbers by mid-year

“When I took on the role as MD, I had a range of issues to address across the business and having Performative to focus on the sales and selling issues enabled me to focus elsewhere.  They did a huge amount of work in a very short time and what they have created has set us on the right road to become a pro-active new business hunting company whilst retaining our capability to effectively manage existing customers.

We have already exceeded 2012’s new business orders and we are enjoying a much higher conversion rate of proposals to orders.”  Roy Frost, MD, Deceuninck UK

The Challenge

Deceuninck is active in more than 75 countries across Europe and has been in the UK for over 30 years.  They make high quality uPVC profile extrusions for double glazed windows, doors and patio doors.

In early 2013 a new UK Managing Director was recruited to return the company to growth.  He quickly realised he had issues to resolve in the sales and selling area of the business and having worked with Performative in a previous role he immediately asked us to help him.

The Performative Solution

An initial thorough analysis was conducted which revealed that while the company had a very effective account management model, the main issue to be addressed was the lack of an effective new business selling capability.  Fixing this problem was crucial if the company was to achieve its ambitious four year growth plan.

The fully documented solution, built around Performative Structured Selling® and tailored to the specific needs of Deceuninck, incorporated:

  • A fully integrated, “joined up” process linking the external appointment making service with the field sales people, and the database used for prospecting with the company’s CRM system.
  • A qualification and quantification process to focus efforts on the most promising organisations and opportunities.
  • Sales territory planning enabling better control and management of the field sales people.
  • An entirely new approach to sales proposals, turning them into a more focused business proposal for the specific prospect.
  • Training and coaching sessions for the new regime across the whole team including appointment maker, field sales staff and sales management.

In addition, to support the MD in his role as sales manager:

  • Creation of KPIs and an opportunity probability calculator.
  • Design of new commission and bonus schemes to reflect the mixed role of new business and account growth.
  • Creation of the job specification for a sales administration position.
  • Produced the design specification for a price comparison mobile app to support the sales people while selling to new prospects.
TECG, sales process, sales pipeline, sales forecast

The Energy Conservation Group

The Outcome:

A streamlined and more effective and agile sales operation positioned for continued sector fluctuation.

“Performative made a significant contribution to securing our position as a leading quality supplier in the renewable energy market.  We now have a fully integrated sales process for both office and field staff, which has brought us more effective new business generation and better visibility of the sales pipeline. We are now better placed to respond to whatever the market, government regulations or the competition may throw at us.  We enjoyed working with Performative and found them responsive, collaborative and pragmatic, always willing to contribute and flex with the changing needs of the business.”  Chairman, TECG;

The Challenge

The Energy Conservation Group (TECG) helps homeowners and businesses conserve energy, save and make money through the design and installation of energy solutions.  Although TECG was performing well, competition in the sector was increasing and government regulations and incentives were changing, both of which created business risk.  Performative was asked to review the sales operation to find areas to streamline and improve agility and performance.

The Performative Solution

Performative initially undertook a Sales Maturity Assessment (SMA), which found:

  • Fragmented sales management
  • Leakage throughout the sales cycle leading to lost opportunities
  • Field sales motivation issues
  • Lack of sales targets
  • An over-complex lead generation process.

The issues found were compounding to create low efficiency and effectiveness.  Performative designed a Sales Performance Transformation programme to address this, which included:

  • “Lead generation” performance improvement for two telesales teams
  • Field sales performance improvement
  • Improvement of the interface between the lead generation and field sales operations
  • Recruitment and selection of both internal and external sales people
  • Definition and delivery of new sales models and associated processes
  • Induction, training and development of all sales people
  • Design and delivery of compensation plans based on achievement against selling targets
  • Definition and delivery of an optimum sales management model for the field sales people
  • Design of the optimum sales management model for the whole selling operation
  • Review of the sales “employment” model and recommendations for change
  • Preparation of a handover to TECG including the means for on-going evolution
  • Provision of on-going support and advice.