An environment of unprecedented information technology and digital channel innovation is rapidly changing the nature of business. Advances in information technology, including systems (customer relationship management, digital asset management), tools (data management, analytics), infrastructure (mobile, cloud) and information (big data), give sales forces, along with their customers and competitors, better access to information. At the same time, digital channels (apps, social media, email, text messaging, videoconferencing) give buyers and sellers new ways to connect and create value for one another. All of these changes affect sales forces and sales compensation plans.
Despite all the change taking place today, sales compensation remains a powerful management tool for motivating salespeople, providing strategic direction and encouraging fiscal responsibility in a sales force. Several current issues make it more challenging than ever to design and implement effective sales compensation plans:
- Current sales compensation plans are misaligned with today’s sales roles, especially where multichannel or team-based selling are concerned.
- Financial incentives aren’t always enough to motivate today’s diverse workforce
- More than ever, sales forces feel pressure to drive profits, not just sales; the ability of a plan to direct sales efforts to the right customers and products, and to sell at the right price, becomes increasingly important.
- The issues of quota setting and plan understanding are not going away; accurate quota setting is a perennial issue, and companies struggle with getting sales forces to understand and embrace sales compensation plan change.
The latter bullet item is especially relevant to the biopharma industry, where sales compensation plans change frequently as new products are launched and markets evolve. A particularly difficult transition is changing a commission plan paying from the first dollar sold to a quota-based plan paying only for sales above a quota or threshold. Companies may do this if pay levels under the commission plan start growing precipitously because salespeople are generating many repeat sales for minimal sales effort yet aren’t serving their customers well or following up on all opportunities. Salespeople don’t want to give up earning potential, so the company risks losing salespeople and customers if it changes the commission plan or tries to reassign accounts to improve customer coverage.
A biotechnology company used culture and communication to enable the transition from a commission plan to a quota-based plan without significant sales force and customer disruption. Back when the company had launched its first product, sales leaders had introduced an incentive plan paying salespeople a commission on all sales in their territory, while making it clear that the plan would change after the initial launch phase. By the second year after launch, the company had enough data to make reasonable forecasts of territory-level sales, and it changed to a quota-based incentive plan.
Salespeople’s payout started at 80% of their territory sales quota and accelerated beyond 100% of quota. Going forward, the company could adjust territory quotas as needed to keep pay levels in line with the evolving sales role and market needs.
By thinking ahead when creating a sales compensation plan and using analytics to predict future financial consequences under different performance scenarios, companies can anticipate outcomes. Then by building flexibility into their plans and into their culture, they will have an easier time implementing changes as markets and company strategies evolve.
Success = sales compensation change aligned with business goals
The hundreds of sales forces we work with every year, along with our surveys of sales and compensation professionals, suggest that more than 75% of companies will make changes to their sales compensation plans in any given year. These ongoing plan changes help to keep sales compensation aligned with a changing business environment. Some plan changes are brought about by external market forces, such as changing customer needs or new competition. Other changes are designed to exploit new opportunities for the company, such as a product launch or entry into a new market. Still, other changes are designed to give the sales force a motivational lift or to deliver better on the wide-ranging expectations of sales and marketing leaders. Whatever the reason for changing your sales compensation plan, finding the right plan design and implementing it effectively in today’s complex world is no easy task.
ABOUT THE AUTHORS
Andris Zoltners and Prabhakant Sinha are the founders of ZS Associates, Inc., now a global consulting firm on sales and marketing practices across many industries. Chad Albrecht and Steve Marley are principals at the firm, and Sally Lorimer, a business writer, is a former ZS principal.
Sales Compensation Solutions, from which this article is excerpted, is available for purchase at www.amazon.com/Sales-Compensation-Solutions-Andris-Zoltners/dp/0998934704/.