Evaluate the effectiveness of your Sales Compensation Plans based on Q1 Results
Next to salaries, sales compensation is your largest variable expense. But because there are so many facets that go into sales compensation, these details are often overlooked – until the management team is hit with higher than expected payouts or lower than expected revenue.
The cost of an ineffective sales compensation plan is enormous. These costs can be related to:
· Lost revenue because of confusing or misaligned sales compensation plans
· Overworked sales reps covering expanded territories
· Lost opportunities because of open or inappropriately covered territories
· Difficulties finding the right talent
· Cost of recruiting and training new hires
· Demotivation of remaining team
· Accounts and other employees also exit with that sales rep
Revenue below target is just one of the easily seen signs that your sales compensation plans are not working. A more hidden cost is the cost of sales rep turnover which is real and much more than you expect. The cost of losing an average employee is 1.5x the fully loaded salary. The cost of losing a top performer can be 3x more than losing an average performer.
So how do you know your plans are workings? A good rule of thumb is to evaluate often, change rarely. Changing your sales plans frequently creates confusion and can make it even harder for sales reps to achieve their goals. If possible, stick with your plan for the entire year to avoid the pitfalls of changing mid-year but if there is a major problem with your sales compensation plans, change them now before your fiscal year slips away. Evaluating the effectiveness of your sales compensation plans is easier than you think and should be done quarterly.
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