Over the years, I have seen many sales compensation plans – the good, the bad, and the downright puzzling. Some are based on a flat bonus per move-in model, others are based on a percentage of revenue, some speed up the per move-in bonus amount as the number of move-ins rises, some pay nothing until the salesperson hits a threshold – it is all over the map.
I just read a fantastic article by Lee B. Salz, a sales management strategist at Sales Architects in Minneapolis outlining five ways to break out of the “quota” trap and develop a comprehensive sales compensation plan that benefits the salesperson, the company, and its customers. “While earnings are an important and relevant point, they aren’t the only consideration when designing an effective sales compensation plan,” says Salz. Focused on tying compensation to special quotas, companies wind up with unproductive, unmotivated sales teams that produce only when they have to.
5 Ways to Break Out of the Quota Trap
Kick it off with a solid sales process
For a compensation plan to be effective, start by developing and documenting a sales process. Most companies ignore this step and instead jump right into writing commission checks as sales are closed. “You can’t reward for behavior if you don’t even know what the desired behaviors are,” says Salz. A better approach is to take a step back and figure out which results deserve those rewards (Prospecting? Closing sales? Collecting deposits? Professional referrals? Selling at market rate? All of the above?), and then wrap the sales compensation plan around those key goals.
Make your sales process clear-cut and transparent
Consider, for example, exactly what it takes to close a deal from concept to completion. In most cases it starts with an initial contact, then tours, home visits, creative follow up, collecting a deposit, and ultimately signing a lease. Only by looking at the sales process from start to finish can managers identify the important links in the chain and come up with effective ways to compensate reps for their progress.
Match desired activities up with actual results
Sales Managers are often frustrated with the focus of their salespeople, says Salz, and it is the sales compensation plan that causes this frustration. For example, asking salespeople to focus on selling at full market rate without using incentives or paid move-in sources, but then compensating them with a flat dollar amount per move-in, is a sure-fire way to cause the disconnect between desired activity and actual results. “Figure out what behaviors deserve the incentives,” Salz suggests, “and then come up with a sales compensation plan that positively reinforces those behaviors.”
Work backwards from the company’s larger goals
If the expectation is that the salesperson moves in 6 new residents per month in order to grow census or maintain high occupancy, then historical conversion averages will help create the behaviors needed to produce the desired result. If the salesperson has a 25% tour: move-in average, they will need to generate 24 tours and if they typically convert 75% of their inquiries to tours, they will need to generate 32 new leads. Next, look at how many sales calls, events and prospecting activities will have to take place to generate the required qualified leads and tours. Once those parameters are in place, be sure to include decelerators for poor performance and accelerators for the salesperson who exceeds the goal. “Drive your salespeople to meet and exceed the plan that’s in place,” says Salz, “or you’ll wind up back at square one, with sales reports full of peaks and valleys.”
Smile when you sign that commission check…or go back to square one
“If there isn’t a smile on the executive’s face when he or she signs that commission check, then there’s something wrong with the plan,” says Salz. Likewise, “If your compensation plan is structured properly, it should tickle you pink to write out that check,” Salz says. “If you are resentful or remorseful in any way, then it’s time to go back to the drawing board.