Trouble retaining top sales talent! Is your Sales compensation plan design or administration to blame?
June 5, 2017
Sales turnover can be very costly - cost of lost sales, cost of hiring, cost of ramping up new hire, impact on remaining team motivation, etc.
According to a study conducted by World at Work, three in ten U.S. employees say they are likely to leave their employer in the next two years. Those employees are looking for fair pay, career advancement opportunities and job security according to Laura Sejen, managing director of talent and rewards at Willis Towers Watson.
There are lots of reasons why a sales rep leaves, sales compensation is just one of the many issues, which just happens to be related to the #1 reason they leave – fair pay. Sales rep turnover could be related to lack of coaching, problems with management, lack of career development, etc. but often the impact of sales compensation on turnover is overlooked. This article will deal with the sales compensation plan and administration aspect that could push the top sales talent out the door.
So, what does it mean to you and your company? Lots of lost revenue!
According to SBI, A players generate 5 times more revenue than B players and 10 times more revenue than C players. When an A player leaves, it has a much more dramatic effect on your company’s revenue.
The cost of replacing a single rep can be well over $100k in acquisition cost, training costs, and lost sales. It can take three to six months until the new hire produces and an entire year before they are fully productive, further reducing your revenue stream.
Here is my list of key elements of sales compensation that impact retention:
1. Paying the wrong TTC
Target Total Compensation is base plus incentive and what you plan to pay the sales rep if they hit their quota. This number is drive by many things like affordability and market. Consider when you are setting your TTC, companies that pay below the 75% percentile have a turnover rate of more than 50%.
2. Not clearly communicating the sales compensation plan
Your sales compensation plan document is how you communicate your strategic vision to your sales team. When it is clearly written, your team knows what they need to do to be successful and your A players want to be successful. Your plan document should include all the rules of who gets paid for what and how much they get paid. You want your team focused on selling and not guessing what you meant.
3. Changing the plan too frequently
If you’ve ever sailed, you know that it requires several tacks or changes of course to get from point to point under sail. The larger the ship, the more time needed to change direction. The same is true with your sales team. They have determined their course based on the current plan and it requires time for them to change direction.
4. Assigning large unrealistic quota
Your quotas must be realistic yet aggressive. The sales team must believe that they can achieve it. If you base the quotas in reality your A players will try to exceed it every time as they like the challenge and want to be successful.
5. Raising quota based on last year’s success
Often a company will want to allocate quotas based on last year’s sales by reps. This actually penalizes your A players by given them an extra large quota because they were previously successful. You’ll see the classic saw tooth attainment, high sales, followed by larger quota, followed by lower attainment. You get the picture. They won’t stay around long!
6. Not having enough upside
This is the amount a sales rep can earn over and above their TTC for excellence. Your plan should be designed to pay much more to the top performers once they exceed their quota. Give them the reason to stay and be a top performer for you.
7. Making commission mistakes
Not all sales reps are into the numbers but in my experience if you make a mistake in the commission calculation, you’ll hear about it if you paid too little! That sales rep will be checking the payment calculation for each commission period for about six months until they feel pretty comfortable that you got it right. That’s a lot of wasted sales minutes.
8. Taking too long to pay commissions
We’ve all heard the story that sales reps are coin operated and proud of it! Taking too long to pay your reps will work against you. Look what happened to HP.