It’s not every day that you run into someone with 20 years of experience with sales performance. While sales performance has always been a key concern for any sales-centric organization, change has accelerated in the last 10 years. Most organizations now truly understand the importance of using well-defined incentive programs, as well as investing in automated SPM solutions to help manage them.
What helps understand sales performance is observing it from different angles and witnessing its evolution over time. John Cavoli agreed to answer some of our questions based on decades of experience designing, implementing, and managing high-impact sales incentive programs across multiple industries.
Q. You worked in the medical device industry – how are sales compensations different in this space?
Most of our sales reps are 100% commission based, so they are essentially running their own businesses in their assigned territories. Additionally assigned “territories” in our business are not solely geographic-based because there are often multiple sales reps in the same geography due to the specialization at the specific hospital/surgeon/marketing division level. So, for instance, multiple reps can call on and support the same hospital and even surgeon for different types of surgical procedures due to the specialized nature of the medical device industry.
- Commission-only plans aren’t just for emerging businesses. They also exist in well-established, sophisticated industries.
- Territories don’t need to be geographic. They can also be logical, and can be organized based on how products or services are delivered.
Q. What’s the hardest part of sales commission programs?
Communication is always key – especially in a large company. Ensuring timely and accurate information is communicated at all levels of the organization is crucial.
- An incentive plan’s effectiveness will be diminished if it’s not well understood, or insufficient time and effort has been invested in communicating it.
- Communication requires careful planning – for example, preparing managers to communicate with their teams, or choosing the best time to announce a new plan.
Q. What’s the #1 quality of a well-designed sales incentive program?
Equity is #1, but also the perception of equity at all levels, which is successful only if methodologies are properly communicated in a transparent manner.
- Not everyone will be on the same incentive plan. But everyone will want to know who’s on what plan. Being able to clearly describe the logic used to define each plan is required to convince the sales force that there is a fair playing field.
- Clarity and transparency help ensure the sales force has a positive view of incentive plans. Transparency helps representatives focus on potential earnings – not obscure plan “gotchas”.
Q. Is it worth personalizing sales incentive plan – or is it too much overhead?
In my opinion you cannot have equity without some degree of personalization. A one size fits all approach only works if all factors are equal and all sales reps have the same opportunity (which is nearly impossible in the real world). Assigning quotas based on opportunity (i.e. existing customer base, total market opportunity, current market share, expected market growth, etc.) have to be recognized and reflected to be as equitable as possible.
- Deploying a single complex plan across different environments is likely to cause issues. A better approach is to create multiple (simpler) plans, and customize them to match each environment (ex: products, territory, etc.).
- Offered compensation must be adequate given the makeup of the target environment. This starts by fairly evaluating the opportunity based on each environment’s parameters. It’s only once the true opportunity has been evaluated that then designing fair rewards becomes possible.
Q. Any horror story you want to share about sales commissions?
Probably the worst cases I saw occurred when a sales rep would receive a windfall (i.e. when the reward far outweighed the effort) due to a misstep by a competitor, significant price reduction or other concession made by the company. Most of the time the company would be reluctant to adjust commissions downward to account for these types of situations, which in my experience generally leads to higher sales rep turnover once the sales rep comes to expect this unrealistic compensation and realizes it is not the norm.
- Sales commissions can be affected by the dynamic nature of business. For example, competitors going out of business, product recalls, new pricing models, data breaches, or new product launches. Well-designed incentive programs should safety include mechanisms capable of handling anomalies.
- Sales leaders should have the courage to adjust commissions resulting from events outside their control. By reminding their teams that the reason for sales commissions is to reward true performance, sales leaders can effect adjustments and ensure continued fairness.