What drives superior sales organizations? Well-designed commission plans! Great incentive plans energize teams, align sales behaviors with company goals, and ensure that every commission-related cent is spent wisely. However, in practice, great commission plans are a rare find. Why? Because it’s quite easy to fall into one of the following traps…

#1 – Over-Complicating Plans
Unless overall business objectives are themselves complex, your goal should be to keep incentive plans as simple as possible. Benefits include:

  • It’s easier to forecast spend
  • It’s easier for managers to present the plan to their teams
  • It’s easier for sales representatives to understand terms and conditions
  • It promotes key business priorities by eliminating distractions
  • It increases management’s credibility (complex plans are often treated as suspect)
  • It minimizes the probability of a challenge (legal, dispute, etc.) or loophole

There are situations where additional complexity is required to promote desired sales behaviors. The good news is that this complexity can often by encapsulated by reasonable setups such as:

  • Transaction scoring (for example, to penalize refunds or promote sales of certain products)
  • Spend caps (for example, to re-adjust payouts so that a set maximum is not exceeded)

#2 – Always Reusing the Same Plan
While it may seem convenient to keep re-using the same commission plan, it is also a sure way to create incentive fatigue. Even a plan with proven results can be analyzed, refined, and improved. Recycling incentive plans can result in a perception of “same old – just with higher quotas”. Also, while re-using a plan provides some safety, it doesn’t take very much to spice things up – for example by adding more varied rewards such as prizes, trips, etc. Often, non-financial rewards and authentic employee recognition can do wonders.

#3 – Rushing a Plan’s Design
Designing an effective sales commission plan takes time. Many job titles, experience level, and sales behaviors must be considered. Faulty plans can have a very negative impact on sales. They can cause sales representatives to give up. They can promote sales behaviors which are not aligned with business goals. They can also cause unexpected overspending. To design an effective plan, it’s important to spend time modeling results, for example by running simulations to ensure goals are attainable. Equally important is to ensure there is enough performance-based differentiation between individuals. Along with such tactical issues, getting feedback from sales leaders to make sure they are on board is key.

#4 – Monitoring a Plan’s Performance
Many businesses operate in dynamic environments where sales can be affected by a technical outage, a product launch, pricing model changes, emerging competitors, and much more. Failing to adapt incentive plans to changing realities can be costly. Sales leaders should not be shy about making changes in response to a changing landscape. The main principle behind sales commissions is to be fair and reward true performance. And this can mean lowering or increasing quotas – real-time. For example, a sales leader could 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. Be assured that, had there been a product issue on our end, we would have done the opposite and lowered quotas.”

In Conclusion

So what’s the solution? For incentive plans to be successful, they should be:

  • Kept fresh – often, changing perks can be enough
  • Kept simple – as long as business goals are not compromised
  • Kept dynamic – it’s fair to make changes if the landscape changes
  • Not be rushed – it does take time to create a great incentive plan