The Equilateral Triangle Model For Developing Sales Compensation Plans

There are few more critical decisions that business leaders make than how to compensate their sales organization. Unfortunately, many look at this issue from a single vantage point. How much do we want our sellers to earn if they hit quota? While that is an important and relevant question, it should not be the only director of sales compensation. Unlike any other position in the company, the sales person has two job descriptions, the one called a job description and the compensation plan. While HR may have the job description on file, the one that drives the sales person's activities is the compensation plan.

There are multiple considerations for business leaders to review when developing sales compensation plans because the plan doubles as a job description. Since it directs their sales behaviors, you need to look at how it impacts the service the client experiences. It also impacts the overall results for the company. Thus, there are three entities to consider when formulating the sales compensation plan: the sales people, the clients, and the company (employer).

The equilateral triangle serves as the perfect model when designing sales compensation as it ensures none of those three entities is over/under recognized by the plan. Each side of the triangle represents an entity affected by the sales compensation plan. If any of the sides of the triangle are out of proportion from the others, the result is the law of unintended consequences. Things happen that are not intended, but are consistent with the message communicated by the plan. Here are some examples of compensation plans gone awry.

Case Study: Health Club. A large health club chain offered a program that provided employees of certain companies discounts on memberships. The way the program was structured was that the health club sales person would generate a lead for the corporate sales person. The corporate sales person would call the company and offer the employees a 20% discount on memberships if they would post a flyer for 30 days to communicate the offer to the employees.

Coming back to the equilateral triangle model for sales compensation, this program was a colossal failure. The company paid full commissions to both the health club sales person and the corporate sales person on a 20% discounted membership. Needless to say, the sales people were happy and invested countless hours pushing this program instead of the other programs offered by the company.

The other two entities were much less satisfied with this offer. The company, because the membership was heavily discounted and were paying double commissions (not only to the sales people, but their leaders), came to realize that they had a near non existent margin on every sale made. They also found that their corporate sales team dedicated all of their selling time to this program instead of other programs that were of higher margin to the company, but paid lower commission rates.

When looking at the third side of the equilateral triangle, the clients saw no value on the program. The companies simply stuck a flyer on a bulletin board and saw no tangible benefits. Further, when those employees who joined the health club through this program were interviewed, most said that they were planning to join any way at list price.

Thus, the program failed two of the sides of the sales compensation equilateral triangle model.

Case Study: Human Resources Outsourcing (HRO) Service Provider: A firm offering outsourced services to Human Resources Departments of large companies structured their compensation plan to pay commissions to their sellers at the highest percentage for the first 18-months following the commencement of the contract. After that period, the commission rate dropped to a fraction of a percentage. While at the surface the plan does not look perilous, there were some underlying components that caused issues.

The 18-month clock never restarted with a company. This means that if a sales person added other locations or regions, they only received the commission rate commensurate with the moment in time of the client lifecycle. If the sales person added a new client location in month 19, the commission they were paid wasn't enough to buy a cup of coffee at Starbuck's. If the client purchased additional services, the same compensation issue occurred.

The plan told the sales person to sell whatever you could in the first contract and not to bother with upselling/cross-selling as the compensation level did not justify the work. The clients suffered as a result of this program as well. Since the commission rate for the sales person dropped after month 18, they noticed that the attentiveness of their sales person dropped too. The plan unintentionally directed that to happen, yet attentiveness of the sales person is critical as the nature of these buying relationships is such that there are hourly transactions. They need their sales person to remain engaged.

The HRO provider wasn't happy either. They came to realize that their sales people were not focused on conquering accounts. The sales person would sell once and move on to some other opportunity. The sales people were not focused on adding locations or on selling new products/services to the account. They also found they would lose many of their clients in year 2 and 3 as the attentiveness of the sales person had dropped.

Unlike in the health club example where the sales people were happy with the plan, but the clients and company were not, no one was happy with this plan. After two painful years, the plan was scrapped in favor of one that met the criteria of the equilateral triangle model.

Thus as you develop your compensation plan, ask yourself the following questions to ensure you are following the equilateral triangle model.

1. What message does the plan convey to the sales person about where to focus their selling time?

2. How does the plan impact the client experience?

3. If the sales person follows the plan exactly as it is written, how is the company impacted?

Remember, the compensation plan you put in the hands of the sales organization are the marching orders for the force. The equilateral triangle model helps to ensure every action taken by your sales team is intended.

Lee B. Salz is a sales management guru who helps companies hire the right sales people, on-board them, and focus their sales activity using his sales architecture® methodology. He is the President of Sales Architects, the C.E.O. of Business Expert Webinars and author of "Soar Despite Your Dodo Sales Manager." Lee is an online columnist for Sales and Marketing Management Magazine, a print columnist for SalesforceXP Magazine, and the host of the Internet radio show, "Secrets of Business Gurus." Look for Lee's new book in 2009 titled, "The Sales Marriage" where he shares the secrets to hiring the right sales people. He is a passionate, dynamic speaker and a business consultant. Lee can be reached at lsalz@SalesArchitecture.com or 763.416.4321.

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Shifting the Sales Compensation Paradigm

Executive Summary

How do you protect cash positions while balancing the seemingly contradictory problem of keeping cost of sales under control and your sales force intact while revenues decrease. Compensating sales efforts appropriately is one solution for protecting margins, profit and cash. Solving this issue may take creating a new paradigm for sales representative compensation.

Longing For the Good Old Days

It was like a feeding frenzy when business was booming, backlogs were steadily increasing and customers were paying regularly. Just like the stock market, everyone was chirping 'go baby go'. But times have changed; no doubt your business plan has changed too. Now how we compensate a sales force properly is these market conditions needs to be revisited also.

Sales Force Goals

What are the goals of your sales force? Maybe they have only a sales goal. Perhaps they have a sales and revenue goal, where revenue is net sales after returns, adjustments and back charges. Possibly they have a profitability goal too since your organization desires quality, not merely quantity. Regardless of times, determining how to keep sales incentives appropriate without resorting to Draconian measures that annihilate the heart of the sales organization - both literally and psychologically, is vital too.

Let The Incentive Methods Begin

Compensation on Sales Volume

The most traditional of all methods, it carries with it some in-built shortcomings. If the plan pays commission rates based on total dollar value of the orders, then the rep has little incentive to dramatically exceed the established quota. If you will, the rate is the rate, no matter what, no matter how much is sold.

Compensation Rate with Accelerators

In this plan quarterly targets accumulate to an annual quota. When these quarterly quotas are achieved, the next accelerated commission rate gets activated. This strategy does provide additional incentive over the flat commission rate plan though since the rep is striving for the next higher commission rate at all times. Shortcoming: the sales rep is only working toward the average rate.

Accelerators and Year End Bonus

Add a flat amount as a bonus when over quota attainment is reached. This will incrementally incentivize. Shortcoming: the sales force sees the bonus as paid out at plan year-end, which usually is paid after a years worth of effort and energy. It does not give them the ability to earn the bonus in the present.

Net: traditional sales compensation plans are back end loaded, i.e. a payout is awarded after successive sales hurdles are reached or as the plan year ends for over goal performance. That's wonderful if everyone makes quota every quarter, not a likely scenario - especially in this economy.

Coping with a Few Realities

All businesses, regardless of market space, are seeing declining revenues due to fewer actual orders with lower order value. The fact is cash once collected amounts to less.

We can improve margins and cash by cutting variable sales expenses. On the surface this looks like a no-brainer. However, you could be triggering call reluctance behavior. Customers being paid attention to now will be stronger customers when the economy improves. Besides you risk having your competition fill the void your sales staff is creating by fewer customer and prospect calls.

Less revenue and cash means a staff headcount reduction. Or should it? If you cut sales staff now when business improves you will need to staff up again. The knowledge base of severed employees will take time to be gained back by new sales members resulting in an unproductive learning curve for you and them.

An intelligent sales incentive program is one that compensates for achievement according to the company's business plan. And in these economic times every company in America has had to modify their business plan.

A New Paradigm

If your goals are to maximize unused plant capacity, optimize your supply chain resources and smooth the bumps in your quarterly business cycles, then the sales compensation plan that follows just might contribute to that end, and help cash flow too. It is based on measuring and compensating sales efforts quarterly.

Baseline Presumption

If your sales team is like most, 80% of the business is generated by the top 20% of your sales force. So why not compensate the star performers and overachievers well for their results every quarter.

Step 1: Take the assigned quota for each individual and break it down to assignment per quarter.

Step 2: Assign a commission rate to that quota as if it were paid at 100% achievement.

Step 3: Determine what reduced rate you would be willing to pay for achievement of quarterly quotas for 70%, 80% and 90% attainment.

Step 4: Decide what graduated commission rate you would be willing to pay for achievement over the quarterly 100% attainment for various levels, e.g. 110%, 120%, etc.

Step 5: Watch the results come in for the first quarter this is implemented.

Step 6: Those sales persons achieving 70% of their quarterly quota, will receive the 70% rate; those at 80%, the 80% rate; those at 90% the 90% rate; those at 100% the 100% rate.

Step 7: Those exceeding 100% in any quarter, receive the effective rate of overachievement.

Why a Floating Commission Plan Works

1.A Floating Compensation Plan can be accommodated to fit any of the ways you measure sales person goal attainment; sales, revenue, sales and revenue or profit.

2.Regardless of the economic fortunes of the enterprise, you keep incentive compensation proportional to measurables like sales, revenue or profits.

3.You conserve outlays of cash; you compensate those contributing higher value to the enterprise by compensating them proportionally higher. To prove the point, investigate your mean sales dollar of revenue and profit for all orders by quarter for the last year. Then contrast the mean percentage rate of commission payout for the entire sales force. You will see that higher commission rates are paid to sales persons that contribute less to the business.

4.You install a measurement mentality in the sales team that is based on quarterly performance, probably the same way you are compensated.

5.You want to keep sales force self-motivation always at peak levels. They will see, especially the 20% mentioned above, that they maximize their income by exceeding quota every quarter. Getting paid in the near term is an incentive too good to ignore.

6.The top 20% rightly will conclude they are being compensated at higher levels than the average and ordinary in the sales force.

7.Psychologically paying immediately following achievement has great motivating effect, especially if your sales force is highly driven for financial reward with near in gratification for their successes.

There are numerous variants, mutations and perturbations to this concept. While we cannot cover all of them here, nonetheless our purpose was to expose a very viable alternative in sales compensation that can be used to drive the sales behavior you wish. It is purely enterprise and situational dependent.

So the real question is can you use it? Before you try it, analyze the financial impact of the new paradigm, or for that matter any new sales compensation would have on the results of the enterprise. Determine if in modifying the plan you influence the type of sales behavior that contributes to your goals and objectives. Then communicate clearly to your sales force how their opportunities will be enhanced, how their earning potentials can be increased with the new plan.

Always remember, nobody likes someone fooling around with his or her compensation plan. When you convey the message thoroughly, the sales force will be more apt to accept the change in a more positive frame of mind. However any change, especially a compensation one, will take time for the sales people to internalize why it is a good thing for them and the company.

Therefore, spend at least two months educating your sales force about the intended changes, what they are expected to do and why it really is in their best interest. Solicit their input; they will feel like they are part of the decision making process instead of having a policy forced on them.

You will see a few unexpected benefits come up immediately. The sales organization will get a mentality that they need to close all available opportunities before the new plan gets implemented. Additionally, you will see prospecting activities rise because they will want to fill up their sales pipelines with new opportunities that will be compensated under the new plan. Net? Everybody wins.

And your best performers (that top 20%) will recognize immediately how they can optimize the compensation schedule and contribute to the company's goals at the same time. Simply stated, at the end of the day, this plan or any other must coincide and contribute to the business goals of your organization.

Don McNamara is a Certified Management Consultant (CMC) and is President of Heritage Associates, Inc. http://www.heritage-associates.net

Heritage Associates is a full service sales management consulting, training and coaching company. Don also speaks and writes on the art and science of superior sales management and top sales performance. He is the author of "Visionary Sales Leadership."

With over 30 years sales experience from the field level to executive sales management, in his career he has been an individual contributor, corporate sales training manager, regional manager, national sales manager and vice president of sales. Don is a member of the Institute of Management Consultants, where he serves as Professional Development Chair for the southern California chapter, and the National Speakers Association.

For a free e-newsletter contact Don McNamara at djmcn@heritage-associates.net or by phone (949) 230-4363.

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Sales Force Optimization - "Sales Team Compensation"

Many small business owners after reading the title of this article will assume this will be a short diatribe. After all (as noted in an earlier article), everyone knows that all you have to do to attract a great sales force is simply dangle a large bucket of money in their faces. Right? WRONG!

In that earlier article we covered how to attract and retain a high performing sales team. Also, we touched on the importance of structuring an on-target role profile and effective recruiting engine in the attraction process. Additionally, the role of education and career path were identified as two essential drivers of retention.

So what about the sales compensation plan? How do you both compensate and motivate them? An effective compensation plan is not the only factor, but clearly, it is a lynchpin. If a winning sales team is a NASCAR racer then an effective compensation plan is its engine and motivation is the fuel. Remember, salespeople are highly motivated (albeit not solely) by economic gain. Getting the comp plan correct for your business is essential to success in the marketplace. For the purposes of our discussion, we'll wave our magic wands and assume you have found and have in place a great sales team. Now your challenge is to create a sales compensation plan that will be the right mix of the three "M's" of comp plans - motivation, money, and measurement.

Before diving into comp plan structure a few notes, guidelines, and beliefs:

1. There exists no "one size fits all" sales plan. There are a myriad of permutations of comp plans. Plans must take into accounts many factors such as:

-a. Complexity of product/service - it's generically a harder and longer sell to move data warehousing than it is pencils

-b. The sales cycle (how long from first contact to signed order) can be minutes or years. Generally speaking, the longer the sales cycle, the stronger the requirement to have larger base salaries to "bridge" the sales person income until sales commission is realized.

-c. Pricing can be a factor. If the product/service is a large ticket item that has a more elastic/higher margin, then the commission is likely to be larger (data warehouses). Products and services which operate on razor thin margins (pencils) may have less elastic margins and therefore a large sales payout can only be realized via volume.

2. As a general rule, you should strive not to have caps on commission. Caps on commission are an anathema to a sales team. Telling a sales team that there is a limit to how much commission they can make destroys morale. Rightly or wrongly, they believe that as long as they bring in revenue, they should get paid. In the abstract, it's difficult to argue with this simple logic. Sales people would say no caps represents a win-win for the company and the sales person - if the company makes more money, the sales person should make more money. There are a myriad of justifications that I've personally sat through behind closed doors over the years with expansive diatribes rationalizing why business owners are reluctant to pay big commissions to sales overachievers. When you look under the covers, most of the arguments do not hold water. All too often, if you peel back the onion, the real reason is jealousy and greed. After all, a sales person should never be able to make more than their manager and certainly never more than the CEO! I say garbage! Logic dictates that if the sales team is all exceeding their goals, when aggregated, the company is exceeding its targets and everyone is celebrating.

3. As much as possible you want to use "KISS" philosophy (Keep It Stupid Simple or Simple Stupid). When the plan is uncomplicated it's easy to explain, understand, and administer/ measure. I've seen far too many comp plans that read like a novelette. Trying to get too fancy will only feed the fires of potential ambiguity and controversy. You need to remember the poor people in the back office (HR, Sales Operations, etc.) who are trying to track, report, and pay commission on these plans.

4. Make it a goal to have one plan against which all sales people are measured.

5. A sales compensation plan should never be changed mid-year. Only in the case of extreme emergency (changes to the business itself, ex. merger/acquisition, etc.) should a comp plan be changed mid-year. Otherwise, the business owner should strive to keep sacred the normal (annual) sales plan revision cycle.

6. Use "SPIFFS" to incent special behavior. Spiffs are like a focused mini-incentive plan outside the confines of the main plan. They can take the form of:

-a. beginning of the sales year fast start programs/incentives

-b. end the year with a "bang" programs

-c. product/service specific incentives to drive the sale of newly launched solutions

-d. create/refresh interest in an existing line

Whereas the main sales compensation plan tends to be largely cash based, spiffs can take the form of non-cash incentives such as trips, prizes, gift certificates, etc. Spiffs are not a substitute for the regular comp plan but are an addition to, much like another layer on a cake. Perhaps most importantly, they maintain the integrity of the main comp plan.

7. Comprehend how industry competition is aligned - what are "best in practice" sales motions?

8. There are always exceptions to the plan - but should be minimal and manageable. For example, people enter and depart the organization via; transfer, additions, eliminations, reorganizations occur, etc. Also customer profiles can change (M&A, bankruptcies, funding level changes, etc.)

Keeping in mind that sales plans can/should differ in construction and emphasis depending on factors such as the ones noted above, what are key sales comp plan drivers of a good plan and how do they work together to garner the desired results? Take a look at the graph below. The total compensation line has a funny looking shape to it. Why is it not a straight line from bottom left to top right (as a sales person would argue)? Why is it not a standard bell curve (as a financial comp plan administrator would argue)? Let's decompose what we are seeing as there is a lot going on in this chart.

First and foremost why the pretty colored bars? They represent "bands" of total quota attainment. By most standards, a sales person who has achieved less than 75% of their quota is having problems. It is not our goal to get into why sales people succeed or fail. Suffice it to say as a general rule, at year end, a sales person who has achieved less than 75% of their annual quota typically is in some level of trouble or under scrutiny at least (barring extenuating circumstances). Hence we have the RED zone.

As we progress from left to right the color bars become more green (the color of money) with each bar representing a higher level of quota achievement.

Now, the two curves. What do they mean? One, the black line that looks like a hill or mountain is the commission acceleration curve and the other is the total compensation curve.

The commission acceleration curve represents the commission earned for each sales dollar as a function of the sales multiplier. If, for example, the sales person earns $1 for each $1000 sold, then this is the base multiplier (a multiplier of 1 as seen in the red zone). In the blue band, you see the multiplier has doubled. This means that the sales person is making money at twice the rate as the red zone. It follows that the slope of the curve is steeper in this range reflecting the accelerated earning rate. Clearly sales people are motivated to get into this range as they are earning more money for each dollar they sell. Continuing this pattern in the range up to 100% attainment, the more you sell, the more you earn. This is great alignment between metrics and rewards, between company goals and individual sales person goals.

But wait a minute. The curve continues UP between 100% and 125% in our example. Why is that? Remember, the company goal should be to have every sales person exceeding their quota. If all sales team members exceed their quota, then the company has achieved its annual sales goals. Therefore, it behooves the company to incent sales people to get above 100% achievement. Therefore the multiplier goes up to 3 in our example. The sales person is drooling to be in this range as they are making buckets of commission in this range. Life is good. It should be a goal of the commission plan that every sales person is above 100% attainment and the payout plan should incent this behavior.

Hold on another minute. The curve then turns down after 125% attainment. Why is that? Although I'm not a believer in caps on commission (above discussion), and some industries and situations do lend themselves to a "the sky is the limit on commission" scenarios, it is often prudent from a total cost of commission plan scenario to control or curtail boundless commission. In any sales year, a few sales people will hit it out of the park or get a "bluebird" (sales speak for having a monster order drop in your lap from out of nowhere). Especially in the case of the bluebird, it is nonsensical to pay a large bucket of money for little or no work - pure luck. Also, the world is not running short of sales people who know how to manipulate a quota setting exercise when (for instance) they know they already have a large order essentially in the bag but hide that fact until after quotas are set. Indeed, the balance of the sales team can get bitter and unmotivated if they perceive that another member of the team is getting a large payout for little work.

Therefore, the key above 125% (in or example) is to continue to make it possible for the sales team to make more and more money (no cap), but after some point (125% in our example) they do so at a decreasing rate. That is, the multiplier goes back down. This way, we've met the goal of not capping commission - a sales person can always make more money, but keep commission plan expense in perspective (I've just pleased our friends in the Financial Department).

Now you will understand the reason for the dotted blue line in the chart. This total commission curve continues to rise forever. That is, sales compensation will always rise for the sales person. The acceleration slows past a certain point (125% in our example), but ALWAYS goes up.

This is but one example of a commission structure. The take away from this example is not the chart per se, but the discussion and points made are food for consideration as you construct a plan to motivate the sales team. Some compensation plan reality as reminder and take-away:

· There is no such thing as a perfect plan

· Worry when sales people stop complaining about the comp plan

· It is imperative to match comp plan (behavior incentives) with how our prospects/customers in industry traditionally/typically make purchase decisions

Hopefully you now feel better equipped to face the challenge of creating a sales compensation plan that will be the right mix of the three "M's" of comp plans - motivation, money, and measurement.

By Mark Francischetti
VP Marketing & Business Development
http://www.CxoToGo.com
937-272-6868 cell
mfrancischetti@cxotogo.com

Mark P. Francischetti is a Partner and VP of Marketing and Business Development and a member of our executive team. He has over 30 Years of executive leadership and management experience in a broad range of organizations and environments including start-up, turnaround, SMB, and Fortune 500 operations. Mark has repeated success in driving $50 million-plus revenue gains, capturing long-term client relationships, leading teams of up to 1,200 members in exceeding goals, and driving business expansion in multiple global markets.

CxO To Go is national professional services company headquartered in Denver, Colorado that provides on-demand C-Level expertise and best practices to client companies on a part time, flexible, and affordable basis. Contact CxO To Go at 888-745-8516, http://www.cxotogo.com, or Sales@CxOToGo.com.

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Creativity is the Key to Successful Sales Team Compensation

For any business, creativity is a vital part of a sales and marketing program. Developing effective concepts and strategies that help market and sell a product or service are an essential part of generating sales. However, the compensation plan for sales teams is often an overlooked, uninspired part of a sales and marketing strategy that is too frequently delegated to the payroll or accounting department.

With increasing pressure from competitors and an emphasis on recruiting and retaining the best sales talent, it is simply a mistake for a business to stick to an "old school" method of sales compensation out of inflexibility and unwillingness to consider more creative options. An effective compensation plan should do more than "pay" the sales team members. It serves a multitude of functions and can literally make or break a sales team's effectiveness and therefore, the business as a whole.

When considering the effectiveness of your company's current sales team compensation plan, you should ask yourself the following questions:

1. Is the plan motivating the sales team?

2. Is the plan reducing attrition?

3. Is it rewarding the performance that we need/want the sales reps to focus on?

4. Is the sales team enthusiastic and satisfied?

5. Is the company attracting and retaining top sales talent?

6. Is the current plan going aligned with the desired corporate revenue growth?

If you answered no (or even maybe) to any of these questions, you probably need to explore other, more creative options to your company's sales compensation plan.

To begin, let's look at the four traditional approaches to sales compensation that most businesses have utilized with varying degrees of success:

The "straight salary" plan that doesn't pay commission promotes attention to the customer and a degree of sales rep loyalty, as long as the salary is competitive. However, it neglects those reps who thrive on competition and individual achievement. Often times, the most successful approach to using the "straight salary" plan is to combine it with an effective and aggressive corporate bonus program based upon corporate profits that are distributed to the employees.

"Salary plus commission" is another common compensation strategy that offers sales reps a guaranteed base salary and commission. Generally, businesses only offer relatively high base salaries to seasoned reps that they feel can "hit the ground running" and quickly make enough commission to "earn their keep." Commission percentages will vary based on a number of factors including gross profit, cost of sale, sales cycle, and the complexity of the sale.

Similar to the "salary plus commission," the third commonly practiced method of sales compensation is the "salary plus draw." This plan advances a predetermined amount of commission to a rep each month with the hopes that the rep sells enough to reimburse the company. There are two distinct types of "salary plus draw" methods. The recoverable draw is where a rep is responsible for paying for shortfalls in commissions out of the next month's commissions. Non-recoverable draw doesn't require a rep to reimburse the company for shortfalls. Recoverable draws offer less financial exposure to a company, but non-recoverable draws are more attractive to reps who will have increased stability in their earnings during their first months on the job.

Finally, the "sink or swim" sales compensation plan, also known as "pay for performance" is the fourth traditional approach. Most companies realize that although there is no financial exposure (however, the lost opportunities cost should not be discounted), it may be extremely difficult to attract qualified or seasoned reps without offering any salary. As well, by not having any financial "leash" on reps, it is difficult to direct sales efforts and productivity.

Although all four of these approaches are widely used by companies, there are also highly effective, creative alternatives that can drive your sales team to new heights of success and greatly improve sales in the process. Before sitting down and simply drawing up a new compensation plan, you will need to take a good, hard look at the current compensation plan and sales team, as well as establish a new strategy for moving forward with any creative changes.

It is critical to remember that sales reps are generally unhappy about having their sales compensation plan changed without ample notice and participation. Keep the lines of communication open during this process. Ask for input and, if possible, make this a group process.

Step 1:

Now that you're ready to consider a new, creative approach to your company's sales compensation plan, let's identify the four goals that every plan should be achieving. Your plan should:

1. Motivate the sales reps.

2. Help you to recruit well-qualified, experienced sales reps.

3. Decrease attrition that will reduce recruiting and hiring expenses, and lower training costs.

4. Continuously improve the company's competitiveness.

Step 2:

Next you must evaluate the following factors before designing a new compensation plan. Once again, remember that changing someone's compensation induces anxiety and concern. You want to make certain that you take the following factors into account before making changes.

1. Review the complexity of the sale as well as the length of the sales cycle. Do your reps have the opportunity to earn results-driven compensation within a "reasonable" time frame or is the sales cycle extremely lengthy?

2. What is the tenure of the current sales team? Are they a mature, well-trained and seasoned group of veterans or are they more junior and require more "hand-holding and training?

3. Evaluate your company's "compensation competitiveness" in the industry / market. Do you attract the "best and the brightest" or do you find it difficult to recruit sales talent.

4. Do you suffer from a high rate of turnover in your sales department, therefore causing you to invest in continual "new hired" training and orientation?

5. When was the last time the company made a change in the compensation plan? Has your business changed yet your compensation remained the same?

6. What percentage of gross profit does the sales force cost the company?

7. Does the company reward the sales team in a way that supports the corporate vision/growth plan? (For instance if sales reps are incented to grow their existing account base then they will endeavor to cross-sell and introduce new products and services. If this effort is not rewarded they might be more prone to become "order-takers" vs "order-makers").

It is understood that the primary goal of any sales compensation plan is to reward the sales reps while allowing the company to generate a desired profit. Certainly it is unfair and a strong disincentive to have the company rolling in profits yet provide minimal returns to the reps that generated the business. Of course, on the flip side, a company that develops a compensation plan that does not take into account the required margin and desired profit undermines its ultimate growth and stability.

Of critical importance is understanding your firm's operating expenses and required margin so that your sales compensation does not get your company into financial hardship.

It is also important that your sales reps have easy access to their sales data so that they know where they stand in terms of their compensation and incentives.

Once these things are in place you can now look to getting creative with your sales compensation.

Creative Options:

Compensation Cafeteria Plan: Many companies have adopted a cafeteria plan for their health care and employee benefits. This type of plan can also be configured for compensation, and it allows your reps to select their compensation package based upon their lifestyle and financial circumstances. For instance, not all of your sales reps may need to have their commission paid monthly. They can afford to live on their salary and would prefer to earn an additional percent and get their commission checks on a quarterly or semi annual basis. Other sales reps would prefer to substitute a company car for some of their commission earnings or perhaps apply some of their commission dollars to some other perk (travel voucher, etc).

Adjustable Commission: In this scenario the sales reps receive no commission or very low commission at the beginning of the company's fiscal year. This lets the company cover their fixed expenses as early in the year as possible and once this has been accomplished the sales reps can start to earn their commission at a higher rate since the company is not financially exposed.

Monthly Payments: This is particularly effective when there is a lengthy sales cycle. This plan takes a positive approach and "assumes" that your sales reps will meet their annual quota and therefore, you distribute the commission that would be paid on this quota in a monthly payment. If a rep does not meet their quota at the end of the year they are responsible for "paying back" the shortfall.

Corporate Profitability Bonus": Sales reps that successfully reach a pre-established revenue target can become eligible for corporate bonuses that are based upon their contribution to the overall profitability of the firm. This allows your sales reps to profit when the company does and helps to facilitate corporate growth.

Ensuring Sales Rep Satisfaction:

Consider incorporating other incentives and recognition devices into your compensation model and make sure that your incentives are suitable for the individual rep.

An excellent approach is to survey your reps to find out what they would consider exciting and worthwhile. It's a great way to get your sales reps to buy-into the plan and will encourage the behaviors that are mutually rewarding.

Bottom-line, your sales compensation plan should be a win-win situation whereby your company accomplishes its desired profit and at the same time, motivates and rewards your reps.

Adrian Miller is President and Founder of Adrian Miller Sales Training, a sales consultancy that she launched in 1989. Adrian is also the author of "The Blatant Truth: 50 Ways to Sales Success" and is a well-known and highly regarded speaker and consultant. Always entertaining and rigorously practical, Adrian can energize and motivate your sales force to reach new heights. She also works with solopreneurs and professional services providers to help them grow their business using high-impact sales process.

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