Designing a Winning Sales Commission Structure in 2022
Just as athletes are motivated to reach peak performance, so are sales teams. Research shows that it takes new sellers an average of three months before they are ready to interact with buyers, nine months to reach full competency to perform, and a full 15 months for them to become a top performer.
But it isn’t just time to get settled, familiar, and adjusted that can be attributed to reaching this level of success. There are plenty of other factors that can impact sales performance too, such as motivation and strategy from leadership. When a sales team is struggling to hit goals and training, enablement, and other avenues have already been thought through, it may be time to look at your sales commission structure.
A good sales compensation strategy can improve sales performance by motivating your team, driving the right behaviors, and improving employee satisfaction. Designing such a program involves a few valuable concepts and ideas worth knowing.
With that in mind, here are five tricks to create a winning compensation plan:
Don’t cap commissions.
On the surface, not capping commissions may seem like a fool’s errand. It’s not irrational to think you have to limit commission payouts as a means to manage operational expenses. However, it’s narrow-minded thinking.
By capping commissions, you’re killing an overachieving salesperson’s – or team’s – initiative. And, ultimately, you’re not helping the company. In a market where the employee has the power, you put yourself at a much greater risk of having your top sales talent depart for other opportunities.
According to HubSpot, sales teams lose more than a third of their salespeople over the course of a year. On top of that, would you rather have a sales team that is working to hit a number – and then sitting back for the rest of the quarter because there is no financial reward to doing more – or constantly selling?
Up to 80 percent of managers without commission caps were reported to hit or exceed their goal.
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I have to believe that most companies would opt for the additional revenues and an engaged sales organization that constantly has its foot to the pedal. Removing caps from commissions can improve revenue by nearly 10 percent.
The key here is ensuring you’re implementing the right sales commissions strategy for your business because it’s not one size fits all. It’s important to think through all the options and pick a strategy that makes the most sense for your organization.
Communicate your commission plans.
When companies approach us for guidance in building out and managing commissions plans, the top issue we see is simple: poor communication. Businesses have come a long way in displaying empathy for their employees, particularly since the pandemic, but also as a matter of necessity: as noted above, this is an employees’ market and there is always another job or three if they’re unhappy with what you provide. According to Forrester, as much as 89 percent of salespeople leave their roles because of commissions-related issues.
There’s another thing here to consider as it relates to the sales organization. Communication is often cited as a challenge across lines of businesses, but it’s an added challenge for salespeople that are dependent on commissions to put food on the table. When communications break down with other facets of the company, issues arise that have an impact on the business and frustrate employees; however, when they break down when focused on someone’s compensation, it can literally mean the bills aren’t getting paid.
Communicate your sales commissions plans – and do it often. Give sales transparency into where the business is and how they are performing against their goals. They will thank you for it.
Add visibility into mid-cycle performance.
This one goes hand-in-hand with better communication. While I’d encourage you to be communicating with your commissioned employees throughout the quarter, it is critical they know where they stand midway through the quarter. As sales teams get younger, so do the expectations that you’re being transparent: 85 percent of millennials say they would be more confident with more consistent views into performance. Doing so is also a motivator for those who may be underperforming, but also for those who are crushing it – and, if you follow our advice, will continue to be driven to do so because their commissions aren’t capped!
Utilize team incentives.
While every organization loves its superstars, there’s added benefit in pushing the team to achieve a level of success. By leveraging incentives – added team commissions based on team and/or company performance – you can provide an added reason for your sales teams to overachieve on their numbers.
For those of you focused on controlling costs, you’re not going to like this much but accelerators have led to nearly a 20 percent increase in annual sales. Sales accelerators reward high performance and create a progressive payout curve,
Building a winning sales commission structure is not easy. It can look like one thing for one organization, and something entirely different for another. It is a process but, much like an athlete trying to hit peak performance, businesses will be better for putting the work in. It takes trial and error. But if you incorporate goals and objectives, critical thinking on different strategies, leverage data, and measure and monitor, you’ll be off to a great start.