Stonewalls, streams and sales compensation
This is third in a series of blogs dreamed up during my training for the Grand Canyon hike in October. Today was a beautiful September day that was more like a July day – warm, sunny, humid, so unlike the weather I’ll be facing in Arizona.
Today I was joined by a neighbor for part of the hike. I was glad for the company as we meandered through the woods for 4.4 miles from my car to hers. Once we reached her car I felt good enough to hike back to mine for an 8.8 mile hike. What was I thinking?
As I walked back to my car I started to notice more of the landscape. There were lots of stonewalls that marked old property lines of what was an old abandoned settlement. The terrain was rough making it hard to imagine there were ever fields of crops. The landowners probably had smaller gardens and farm animals. These stonewalls were also used to contain the animals.
In sales compensation stonewalls exist too. They often sneak into the sales compensation plan unnoticed. The CFO had great intentions when he put a threshold and a cap on the plan. A threshold means the sales professional receives no commissions until a certain volume of sales is achieved. The CFO thinks of it as a way the sales rep can pay for themselves but the sales rep thinks they are working for free!
A cap means that once the sales rep reaches a certain level of sales they no longer earn commissions. This is often seen as a way to limit financial risk. Instead it will cause the sales rep to stop selling as the sailor I spoke about in a blog a few weeks ago did. Plans that have caps encourage performance to goal and nothing more. Do you really want that? Would paying beyond goal encourage the sales reps to continue selling?
On this hike I also crossed a lot of streams. Some streams were flowing fast and others were just a trickle. I wonder how this trail would look after the winter thaw and the snow melts and the water flows down the mountain making its way to the ocean.
Streams exist in sales compensation plans too. They often show up as out of control cost of sales. Commission cost of sales out of alignment with the budget can be traced to lack of modeling the sales assumptions with the designed plans. When designing the plans modeling must be done to ensure affordability before they are rolled out. Changing the plan mid-year because you can’t afford them is really bad for the sales team motivation.
To avoid commission cost of sales overruns you need to make sure you can afford the plans by modeling realistic scenarios against the new plans. Some of these modeled scenarios should include modeling at the sales rep’s last year’s level, last year plus a realistic uplift, a slightly aggressive uplift, a very successful uplift. I also suggest modeling a few of your top sales reps to see how the change in plans will impact them.
Keeps these tips in mind as you’ll be starting the 2019 sales compensation plan design sooner than you realize!