Sales commission programs are intended to maximise the revenue generated from sales activity in order maximise company revenues and profits for its stakeholders. But is it delivering the results required or, like most organisations are you continually 'tweaking' the plan to address sub-optimal performance?
Sales commission programs are intended to maximise the revenue generated from sales activity in order maximise company revenues and profits for its stakeholders. But the the environments sales teams operate in today are very different from those that existed historically. Transactional sales activity is being either being automated or moved offshore where labour is more cost effective. In parallel, consumers of products and services are more educated than ever before and often have more information at their disposal than the sales teams themselves.
This makes the role of the sales person as the sale process requires more indepth knowledge or solutioning than ever before. The traditional commission based incentive program which works well for standard repeatable solutions create issues and behaviours that were never anticpated or forseen when the value of deals are considerably larger and the sales cycles span into the months or even years. Under the traditional commissions schemes this results in a feast or famine scenario for the sales person which can result in desperate and questionable behavior as the pressure of 'making the number' is a daily reality.
The model is not sustainable as we strive for a fair and equitable solution which encourages the 'stars' to continue to over-achieve while maintaining the motivators to ensure the core of the team to continue strive for greatness. the traditional commission based models must adapt to support both the needs ot the sales teams and the changing needs of the businesses to which they must deliver results.
A key role of any incentive program is to adequatly reward for delviery of desired outcomes and behaviours. To this end, the traditional commission plan still has a place for transactional type sales. For high end sales roles however an alternative is required as in an environment where the value of the deal is not reflective of the effort (some deals are simple but large and some are smaller and complex), a target based approach may not be relevant.
Moving the high end sales role away from a commission based approach and onto a KPI driven incentive program is one way this can be addressed. This approach would address the extreme high and lows present under a commission based scheme and provide surety for those involved, removing the pressure to deliver results but through a stongly enforced KPI framework would maintain the impetus for performance.
A KPI approach also recognises the contribution but the non sales members of the team and balances the reward scheme across all involved parties. To identify the appropriate level where a transistion from commission based sales to one of an alternitive model would deliver the optimal results economic modelling would aid in dermining the relevant elasticities of a salespersons income to sales and hence the optimum balance to achieve an outcome where both the salesperson is sufficiently remunerated for sales made and the organisation is suffieicntly rewarded with sales for the salaries paid (Darmon, 1987).
Implementation of a move away from a commission based structure is key to its success. The process must be totally inclusive and the challenges will be to reach a balance between the sales person's expectations and the organisation goals.
Culturally moving sales from a commission based scheme to a KPI scheme defies traditional behaviours and will take some acclimatisation to gain acceptance. Organisation that mave made this transition are realising improvements in results (Pink, 2012)
1. Establish the appetite for change with teh sales staff - particularly high performers
2. Canvas all impacted parties and establish a framework to ensure the proposed incentive scheme contnues to motivate sales people to over achieve.
Darmon, R. Y. (1987). The Impact of Incentive Compensation on the Salesperson's Work Habits: An Economic Model. [Article]. Journal of Personal Selling & Sales Management, 7(1), 21.
Hill, R. (2007). Motivating sales for higher margins. [Article]. Wood Digest, 38(3), 24.