It seems like it should be easy to motivate sales reps.
A payment structure that pays more as reps bring in sales is where most sales managers focus their efforts.
But it’s rarely this simple. Many internal and external factors can affect motivation:
● A pay structure that is motivating to one rep may have the opposite effect on another.
● Low pay caps and high quotas can have damaging effects on motivation.
● Reps may feel their territory is subpar, causing them to consider targets unfair.
Despite these difficulties, sales managers shouldn’t avoid the subject.
Creating a commission structure that effectively motivates team members can have a huge impact on your bottom line.
It’s a fascinating topic, and much research has been done to try to get to the bottom of the problem. That’s what we’ll look at in this article.
There Is No Perfect Commission Structure
All commission structures have their pros and cons. What works for one team won’t work for another. Key to motivating reps is choosing a system that suits your product, values, and personnel.
Base salary plus commission and tiered commission are commonly used plans. These structures motivate reps to hit their targets while providing a safety net.
They can be effective. Their simplicity means that reps know exactly what to do to hit goals.
But there are considerations. If a salary plus commission model is weighted heavily towards the latter, teams may worry that earnings are outside of their control.
This may be ok when sales are rolling in, but it becomes a problem during leaner times.
Output metrics like rewarding sales calls or meetings can help. But this risks causing employees that are bringing in sales to feel underpaid compared to reps that aren’t hitting similar numbers.
The more you change a structure, the more complicated it becomes. Getting one that supports growth is challenging.
3 Tips for Renumerating Salespeople
1) Set Commission Caps as High as Possible
Commission caps can control costs and stop sales reps out-earning managers or executives.
But, that’s typically where their benefits end.
It’s clear now that caps decrease sales reps’ motivation and effort. Thus, businesses sell more when they eliminate thresholds.
This paper explains how a company increased revenue by 9% after removing limits and resulted in $12 million in incremental revenue annually.
Commission caps may also encourage reps to game the system.
A rep who has already hit their yearly targets has little reason to push for sales. The incentivisation is to instead postpone deals to the following year.
If you have a team full of reps who are in the business due to a deep love of sales, you may get by with caps.
For everyone else, you must explore how they are affecting your team’s motivation.
2) Use Goals Carefully
Quotas can be a powerful motivator, but sales managers must use them carefully.
Set the number too low and reps may reach it and then coast. Too high and you risk discouraging your team.
The second option is particularly demotivating. While you may think stretch goals inspire reps to sell more, the opposite is often true – they can be overwhelming.
And when they do motivate, they may not cause the result you wanted. This Harvard Business Review article suggests stretch goals can lead to unethical behaviour and unnecessary risk-taking.
Setting reachable goals is a better option. You want your sales team to feel that targets are fair and that they are in control of their ability to hit them.
Targets should motivate your entire team – both star performers and the core group.
Using tiered goals can help do this. The first tier should be reachable for the core, while the second is one that only top performers are likely to hit.
3) Adjust Targets When Necessary
There are inevitably times when you need to change targets – but be careful when doing so.
You may look at a rep who hit their yearly quota early on and assume it’s too low. But ratcheting the number up the following year will make that employee feel they have been punished for their good work.
And be sure that you are just as likely to lower quotas as you are to raise them. Outside factors can make it much harder for reps to reach quotas, and there are times when you must react.
The pandemic is the perfect case in point. Many industries saw B2B spending plummet, seriously affecting the ability of sales teams to hit targets.
Agile sales leaders were quick to reflect the changing environment in their pay structures.
An Alexander Group survey in March 2020 found that 70% of companies they contacted were considering providing some type of quota relief or had already done so.
Consider Your Unique Challenges Before Making Changes
You need to look inward when adjusting a compensation plan. If reps are struggling to hit targets, consider lowering them. Or do the opposite if you think they are coasting towards the end of the year.
In many cases the best option is to leave things be, especially if you’ve recently made a lot of changes. You don’t want reps to feel like the goalposts are continually moving.
At Red Flag Alert, we provide organisations with detailed sales data they can use to power sales. Reps get all the information they need about leads and prospects, while managers are happy with better sales performance.
Contact us on 0330 460 9877 to discuss how we can help your business.