Compensating a sales force is one of the most misunderstood aspects of running a business. The mistakes made in this arena are too numerous to mention. Far too many businesses simply do not compensate their sales people in a manner that benefits both the company and its sales representatives.
There are many ways to compensate a sales force. But choosing the right plan for your business is a key factor in determining success. But what is the reason? Because sales activities are the life blood of most businesses.
If the sales compensation plan fails to sufficiently motivate and reward your sales people, the overall success of your organization is compromised. And if the plan overcompensates the sales force, are unnecessarily eroded profits
You should be concerned, at a minimum, about each of the following issues when creating a sales compensation plan:
EQUITY – the plan must be fair and create relatively equal opportunities for earning significant incomes.
PROFIT - your business cannot give away too much and must avoid falling prey to the mistaken notion those sales people are entitled to large portions of the revenue or gross profit they generate.
EASE OF ADMINISTRATION – avoid creating an overly complicated plan that will be difficult to administer.
EASY TO UNDERSTAND - sales people and all other employees have to be able to understand how the plan works.
REWARD – the plan must reward sales personnel in a manner that is consistent with their production. Unintended windfalls – protection against paying for unearned sales (not associated with effort of sales person) must be built into the plan.
RECRUITMENT AND RETENTION -the compensation plan has to be attractive enough to recruit and retain top notch talent.
LONGEVITY - a good sales compensation plan will weather large increases in sales volume and be able to remain in place for long periods of time.
One of the challenges facing businesses hiring sales people is the fact that most sales compensation plans are poorly developed and either over or under compensate sales reps. This means that these sales people have certain biases and possibly some resentment about compensation.
And many sales people have had bad experiences with previous or current employers altering their sales compensation plans, territories or customer base when the employer believes they start making too much money. Having a well thought out and well developed plan that address each of the issues above is critical to being able to attract and retain excellent sales personnel.
At this juncture it is important to dispel the notion that people are not motivated by money. When college business students are taught Mazlow’s Hierarchy of Needs, they are often told that money is not important to people. While this is without question true for many people, it is rarely the case with good sales people.
In fact, experience tells us clearly that it is not true for many employees, sales people or otherwise.
One thing you will want to avoid as much as possible is getting greedy with your employees. Remember that a good sales compensation plan will amply reward strong performers and their overall compensation could very well end up being quite substantial.
Avoid the jealous or greedy boss or owner syndrome characterized by a feeling that one or more employees is making too much money and needs a reduction in pay. This is almost always a very negative situation for you and your sales force and will usually result in high turnover and low morale.
There is a fair amount of psychology involved with motivating your employees. People are people and have certain needs and wants. And every persons is just a little bit different from the next one. Crafting a sales compensation plan for people who tend to be high energy and high maintenance is sometimes not easy to do.