Sales Performance Management Best Practices Blog

Rethinking Sales Compensation in a world of increasing sales complexity

Posted by Jerry Hegarty on Fri, May 17, 2019 @ 14:05 PM

A collague recently forwarded over an informative video from Frank Cespedes of Harvard Business School focused on Sales Compensation and his views on its place in a best in class sales process. I've summarizing the highlights related specifically to Sales Compensation below and provided a link in case you have the time to view it.

A very interesting macro look at sales compensation.

  • Greater than 14 Million sales people in the US
  • Sales expense (SG&A) typically represents roughly 10% of top line revenue (aggregate US sales investment is estimated at 900 Billion dollars) and represents three times all advertising spending !!
  • Roughly 70% of companies base their Sales Comp plans on top line revenue growth.
    • Opportunities always exist to refine this measure to focus more specifically on certain types of sales (more profitable, less costly to support, upselling, cross selling, etc.)
  • Cross Industry turnover is the sales industry averages 25-30 % annually.

Frenk Cespedes HBR PresentationSurveys (CSO Insights) indicate lots of room for improvement, I’ve categorized the survey data Frank references as follows;

  • 32 % as having a clearly broken process;
    • 20% claim that sales comp plans have little or no effect on sales behaviors
    • 12% claim they do not know
  • 9% can claim process excellence
    • 9 % claim that sales comp consistently drives sales behaviors.
  • The other 59% have ‘room for improvement’;

While sales compensation is only one of many managerial levers that are used to ensure aligned behavior, it is a critical reinforcement and does make up the largest portion of the $900B annual US sales expense referenced earlier. Such a significant investment warrants significant attention.

We’ve written about a topic Franks spells out quite clearly regarding the linkage between Motivation, Effort, Results, Evaluation & Compensation from a system design perspective where rewards (Sales Commissions) play a vital role of reinforcing those behaviors that are aligned with corporate sales objectives.

Be careful not to oversimplify plans if the situation requires complexity. With the explosion of new sales channels and customer engagement strategies, the number of sales roles have multiplied. This increase in sales roles are driven by the growth in different tasks involved in the sales process and should logically drive a multiplication of sales comp plans to ensure that the plan for each unique sales role ensures a close tie between action and reward for each role. This tends to increase complexity, not reduce it.

Key Takeaway: must be supported with timely and relevant information systems that help you manage this increasing complexity and bring focus to the linkage between action aligned with your sales strategy and rewards for those actions you want to reinforce.

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Topics: SaaS Sales Compensation, Sales Comp Plan Fundamentals, Sales Performance Reporting, Sales Compensation Professional, Sales Performance Metrics & KPI's