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Tracking sales commissions in Excel has quickly gone from best practice to an archaic solution. After 2020 threw the kitchen sink at most companies, improving your sales commission plan might not be at the forefront of executives’ minds. However, maintaining employee morale figures to be as important as ever in the near future. With this in mind, let’s examine the shortcomings of current plans, as well as what to look for in developing a new one.
Sales Commission Plan Overview
In order to evaluate the effectiveness of a sales commission plan, it is important to understand what it is that a commission plan does for your business. Above all else, a good sales compensation plan drives revenue growth while keeping your sales representatives motivated and engaged. Your sales compensation plan is directly responsible for paying commissions and other compensations to your sales representatives and thus is directly responsible for their performance. If a plan has unrealistic goals and your sales representatives won’t find the drive to hit their marks. On the other hand, provide inflated compensation and your business may not have the cash to explore potential opportunities to grow.
Shortcoming of common sales commission plans
The problem with most sales compensation plans is that those in charge of it forget that like the rest of their business, compensation plans are dynamic. According to a 2019 study, almost 50% of sales representatives said they would leave their job for a 10% pay raise. If you let your compensation plan fall stagnant while your business continues to grow, you may watch your sales team become dissatisfied and find it difficult to attract new employees. In order to combat this managers must constantly reevaluate their plans as their business develops.
Another shortcoming of stagnant compensation plans is the possibility of impossible or overly simple goals. Take 2020’s pandemic for example. If managers didn’t decrease sales goals while the global economy was slowed by the Coronavirus, sales representatives would be faced with impossible goals that provide more stress than motivation. On the other hand, if a company expands past its previous revenue goals then sales teams may begin to stunt the growth of your business.
Another shortcoming related to inaccurate goals is the fact that most sales commission plans are not very motivating. Although this may seem backwards as sales representatives rely on commission plans to earn a living, the problem arises when sales representatives begin to plan for the future. Often times when asked how much they like their compensation, representatives won’t be able to answer until they are paid at the end of the year. What is clear from this response is that a salesperson is hoping to earn a good reward, but is never truly motivated by a clear indicator of performance.
Part of the reason compensation plans fall stagnant is because they are done in simple spreadsheets. Tasking spreadsheets with the sole responsibility of tracking commissions is begging for trouble. Similar to plugging breaks in a dam, it avoids the best solution, even in the case where everything goes according to plan. Even if admins do their job perfectly, valuable hours are wasted on projects that do not grow the business. With little visibility and/or transparency, reps will also have to spend a considerable amount of their time tracking commissions.
If you’re still not convinced, consider the consequences when admins make human errors. Reduced or delayed commissions lead to nightmare scenarios, such as this Oracle $150M class-action suit. Overpays simply lose the company money, another issue that can be avoided with an improved sales commission plan.
Enough About What Not to Do…What Makes a Better Compensation Plan?
What is Motivation
As explained by Yale Professor Victor Vroom’s Expectancy Theory, motivation can be broken down into an equation. This equation states that motivational force is a function of expectancy, instrumentality, and valence. Expectancy refers to the task at hand itself. If an individual feels as though the goal is clearly laid out and that they have the ability to make the sale. Next, a salesperson needs to trust that they will be rewarded fairly for completing their task. Finally, the reward being given must be one that is meaningful and valuable to the sales representative. Often times the disconnect arises as sales representatives are unsure of the compensation they will receive, transparency in this setting, as well as understanding what motivates people is key for developing a strong commissions plan.
Goal Setting
Like any plan within a business, it is important to understand the high level goals before setting individual ones. Sales compensation plans are designed to help make company goals a reality. By setting goals alongside sales quotas, your business will have a clear picture of the direction you want to go. Examples of goals can be to increase revenue, increase repeat customer rates and decrease selling expenses.
The best goals are ones that provide stepping stones towards the overall goal of your business strategy. This means that before goal setting can take place there must be a clear strategy and vision for your business. Once those insights are achieved goals are set to make those visions a reality.
Data Syncing
Teams should not have to constantly worry about whether data they pull is “clean”. The right solution should offer peace of mind in this regard by organizing data from external applications in real-time. At a higher level, this translates to automated calculations that provide more confidence and motivation to the sales staff.
This single source of truth also results in shorter planning cycles and more time spent actually selling your product. Like in all areas of your business, your sales team is constantly making changes to their strategy and sales teams can’t afford to lose time waiting to create a plan.
Customization
Company needs and goals change from quarter to quarter, and a good sales commission plan should change with it. This could be anything from simply adding new team members to completely changing your business model. Taking the time to anticipate the level of company-wide change is a worthwhile exercise.
Report-Building + Levels of Accessibility
Sales reps are not the only people that need access to a commissions solution. Furthermore, employees often have varied access to data. A sales rep should only see his commissions, whereas the finance team might want a report about CAC over time. Creating a wide variety of reports can serve multiple departments simultaneously and extract additional value from a commission plan.
Top Of The Line Security
As with any system that deals with private information, it is important that your sales compensation software provides security measures taken to ensure the protection of data. It is also important that your software complies with data protection laws. In order to ensure your system is secure, it is important to look for SOC certifications and GDPR and CCPA compliance.
Use An Integrated Solution
In order to turn your sales compensation plan into a competitive advantage it is important you have the right tools to do so. CaptivateIQ provides real-time insight into your sales compensation plan thanks to automated data syncing and the flexibility to customize compensation plans on the go. All of these features provide a robust and effective sales compensation plan that is back by real data surrounding your business.
How Can QBIX Help?
The process of creating and implementing a new sales commission plan can be challenging. There are a number of different key features to look for and it is important to make sure your solution works with your existing software. Learning a new software on top of regular business operations may seem like a chore but in reality, it will empower quicker, more accurate decision making. Schedule a quick call with the QBIX team to learn how you can gain real insights into your company data.