Perhaps you rushed your incentive plan design. Perhaps your business landscape changed suddenly (ex: you switched to a new pricing model, you had to recall a product, etc.). Perhaps financial planning failed and projections were totally unrealistic.
Regardless, what’s very clear is that your sales quotas are totally off. Sales is blaming finance, and finance is blaming sales. Sales representatives feel like management has no idea what they are going through or capable of selling. Your VP of Finance feels like there is no consistency in terms of closing deals. It’s a nightmare – you know that your company is going to suffer financially because of over-payment; or you may have some serious churn to deal with because of under-payment.
So what do you do?
To fix the problem, you only have two short-term options:
- Announce new SPIFFs to patch holes in your incentive program
- Have the courage to let the team know you’ve updated quotas
Let’s face it, businesses operate in dynamic environments where sales are easily impacted – a competitor went out of business, a lasting outage killed the product, a new pricing model caused major issues, etc. Sales leaders should have the courage to announce real-time changes to quotas, and for example state that: “As you know, our main competitor has just gone out of business. We’ve decided that increasing quotas was the right thing to do because your commissions exist to reward true performance. Be assured that, had there been a product issue on our end, we would have done the opposite and lowered quotas.”. Here is another version: “We try to accurately predict what we can sell but failed. We set our quotas too high, and we realize how much this could impact you – financially, but also your motivation and commitment to this company. We’ve decided it made sense to revisit quotas immediately instead of waiting for the end of the quarter. We don’t expect to do this again in the future, though.”.
To fix the issue long term, consider the following strategies:
- Give yourself sufficient time to design commission plans – they are too important to be rushed
- Consider increasing plan periods from monthly to quarterly – so that goals are more predictable
- Design your quotas so that at least 70% of your representatives will meet the bar
- Run multiple simulations to verify your models – you’ll need a software solution which supports this
- Cross-validate payouts across different territories, seniority levels, job titles, etc.
- Communicate to everyone the general logic used to set quotas
- Get feedback from sales leaders before announcing new quotas
- Make sure your plan includes provisions allowing you to make future changes
- Avoid incentive designs where no commission gets paid under a given threshold
More on the last point. Consider the following schedule:
– Under a $1.2 million quota, 0% of revenue
– After a $1.2 million quota, 8% of revenue
If your $1.2 million quota threshold happens to be incorrect, a lot of employees won’t be paid any commission! It’s just safer to consider alternative schedules such as:
– Under a $1.2 million quota, 2% of revenue
– After a $1.2 million quota, 7% of revenue
At least you’ve got a reassurance that, if you did screw up, you’re not going to end up with a sales force where virtually everyone is starving.
It’s normal for quotas to be incorrect. No-one can accurately predict the future. What matters is how you mitigate risk and respond to the situation. Playing the blame game is not a solution. What you need is automation to let you accurately estimate and manage commissions.