10 min read
3.6 (20 ratings)“What truly drives your sales team? Understanding this question and tailoring your sales compensation plan accordingly might just transform your company."
1. Align Sales Compensation with the Company’s Strategy
Sales compensation plans need to reflect and support your business’s overall goals. On a basic level, the idea seems simple—reward sales representatives for making sales. However, such plans need to be much more nuanced to align with the broader company strategy and encourage specific desired behaviors from the sales team.
For instance, a company selling high-end copying machines to large corporations requires a long and deliberate sales process. If the sales incentives focus solely on quick results or high volume, the reps may push hard to close deals at any cost, which might not be optimal for the company’s objectives. Such misalignment can create inefficiencies and hurt overall growth.
By designing a compensation structure that guides reps toward scripted behaviors—like educating the client on the machine’s digital benefits or developing long-term trust—the company ensures its reps act in its best interests.
Examples
- A high-tech company linked its sales commission to client onboarding milestones to prioritize quality customer interactions.
- A car dealership rewarded salespeople for upselling specific models aligned with corporate strategy goals.
- A brewery incentivized placements where its beer cans would get maximum visibility in stores.
2. Different Selling Styles Demand Different Skills
Not all sales approaches are the same; each requires a tailored skill set. Generally, sales activities fall into three categories: retention selling, penetration selling, and new customer selling. Each of these roles has distinct demands, and success hinges on placing the right salesperson in each type.
Retention selling focuses on keeping existing clients happy and renewing contracts. This needs patient and consistent relationship builders. Penetration selling is about upselling or cross-selling—the salesperson deepens relationships to maximize revenue. Finally, new customer selling, often the most aggressive, is about finding and closing deals with brand new clients.
By clearly understanding and differentiating these roles, companies can recruit and train salespeople to excel in their specific strengths.
Examples
- A tech sales team used retention sellers to maintain relationships with long-standing software clients.
- A retailer saw its penetration sellers shine by upselling accessories to customers buying electronics.
- An insurance company tasked confident, independent sellers with bringing in fresh clients.
3. Tailor Compensation Plans to Different Roles
Effective compensation plans aren’t one-size-fits-all. Every sales role—retention, penetration, or new customer acquisition—demands its own pay structure to encourage the right behavior. This structure typically consists of a fixed base salary and a target incentive, or “pay mix.”
For instance, retention sellers, who rely heavily on maintaining relationships, should have a stronger base salary and smaller incentives to avoid risk-taking. In contrast, new customer sellers thrive on risk and competition, so offering a larger incentive can push them to succeed.
Companies should also reward high achievers who exceed their quotas. A healthy “upside potential” motivates top performers, incentivizing them to go beyond minimum expectations. Meanwhile, underperformers shouldn’t receive excessive rewards, ensuring fairness across the company.
Examples
- A telecommunication firm used a “60/40” pay mix for retention reps to emphasize stability.
- A newly launched SaaS company gave its hunters an 80% incentive-heavy pay mix to drive aggressive client acquisition.
- Bonus structures rewarded top performers with tiered payouts for surpassing quotas.
4. Choose Success Metrics That Resonate with Sales Teams
Defining “good performance” isn’t as straightforward as hitting a sales goal. Success metrics depend heavily on your company’s larger objectives and the behavior you want from your sales team. These metrics should be specific, actionable, and frequent.
For example, a brewery might not benefit merely from selling beer to distributors. Instead, success might mean ensuring those beer cans are prominently displayed in stores. Frequent assessments—like monthly or quarterly tracking—allow quicker adjustments and realignment.
Additionally, choosing between individual or team performance measures affects morale. Individual targets engage competitive reps, while group metrics can foster collaboration.
Examples
- A soft drink company measured sales reps based on shelf placement rather than overall volume.
- A financial services team tracked client satisfaction alongside revenue.
- Monthly assessments helped a consumer goods firm fine-tune its seasonal strategies.
5. Setting Realistic Quotas is No Easy Task
Even with clear performance measures, setting quotas—the baseline target for sales reps—remains a delicate balancing act. Quotas must be challenging enough to encourage effort without being discouraging. Moreover, quotas should grow steadily as the business expands.
Flat quotas work well when opportunities are equal, such as launching a new division where all reps start fresh. But when reps have different market dynamics, quotas should account for those variations to maintain fairness and accuracy.
Overambitious quotas can crush team morale, while underwhelming ones may foster complacency.
Examples
- A health tech company adjusted quotas based on region-specific client opportunities.
- A retail chain favored flat quotas for a new team launching a winter clothing line.
- Quota adjustments helped a solar energy firm better distribute workload based on market data.
6. Trust the Sales Compensation Team
A CEO shouldn’t micromanage the sales compensation planning process but instead delegate most of the work to the dedicated compensation team. Directing granular details can waste CEOs’ time and demotivate expert planners.
The CEO, however, plays three key roles: setting the overall strategic vision, aligning it with company objectives, and evaluating the plan after implementation to ensure ongoing relevance.
By maintaining boundaries, leadership can focus on high-level oversight and let the specialists handle the finer points.
Examples
- A startup CEO provided broad goals and let the team tailor detailed compensation plans.
- A retail leader held quarterly evaluations to ensure the plan aligned with changing market trends.
- A CEO acknowledged sales team feedback to refine their pay structure.
7. Sales Managers are the Linchpins of Change
Sales managers are vital for rolling out compensation plans and acting as a bridge between upper management and front-line sellers. They enforce quotas, train reps, and adapt to dynamic market conditions.
Recruiting effective managers can be tricky. High-performing sellers often hesitate to transition due to lower potential earnings, but offering long-term rewards—such as company stock or career progression—can entice them.
Good managers know how to motivate teams and translate the abstract goals of a compensation plan into everyday action.
Examples
- A car company incentivized managers with leadership training and stock options.
- A tech firm rewarded managers with recognition events for hitting team goals.
- Flatter reporting structures allowed sustainable career paths for managers in a pharmaceutical company.
8. Avoid Abrupt Plan Rollouts
Sales teams often resist new compensation plans due to fear of change—especially when pay structures are involved. To counter this, companies need to introduce new plans gradually while clearly explaining benefits.
Transparency is everything. Sales reps must understand why changes are happening, who they affect, and when they’ll take effect. If reps see no advantage or feel blindsided, they may resist the plan entirely.
Special attention should go to identifying change-resistant employees and addressing their concerns early.
Examples
- A software firm held town-hall sessions to explain pay adjustments.
- One company piloted changes with a small group of reps before company-wide implementation.
- Feedback surveys helped ease transitions for a consumer goods team.
9. An Effective Plan Helps Both the Company and the Reps
A well-designed sales compensation plan aligns all stakeholders: the reps feel motivated, and the company achieves its goals. Using targets like quotas, role-specific pay structures, and strong management, the strategy can lead to win-win outcomes.
When reps are properly incentivized, they strive for high performance while staying aligned with long-term strategies. These plans reinforce fairness, boost retention, and drive sustainable growth.
Examples
- A fast-growing energy company revamped its sales pay system to sustain year-over-year improvement.
- A retail chain reduced turnover by aligning individual reward systems with company goals.
- Clear objectives helped a tech company improve relationship retention metrics.
Takeaways
- Regularly assess how well your compensation plan aligns with company goals and salesperson behavior.
- Gradually roll out changes to your sales compensation plan, prioritizing clear communication.
- Offer sales managers incentives beyond cash to make leadership roles appealing.