Three steps for better compensation plans

Money is a powerful motivator, and for many salespeople, it's the only reason they need to constantly exceed expectations. With that in mind, it's crucial that businesses develop a solid compensation plan that will drive their agents to constantly close sales. Here are three tips for creating the perfect sales compensation strategy:

1. Look at the math
Compensation plans are driven by math, plain and simple. Commissions, bonuses and other incentives should be based on specific formulas that can be repeated and applied to every product or service, regardless of what a business is currently offering. At the same time, it's also important that sales teams don't over complicate the matter. It can be tempting to create a variety of scenarios to prevent overpayment, but this may lead to plans that are too complex and time-consuming to actually execute.

"In sales compensation terms, this means keeping the plan simple particularly by minimizing the number of measures," a Varicent whitepaper suggests. "A rule of thumb is no more than five measures with three measures as an ideal. The more measures, the more likely it is to dilute the importance of any one element which ultimately results in an ineffective plan."

2. Model the impact
Before launching any business initiative, companies do a lot of predicative work to ensure it will provide a return on investment (ROI). Compensation plans are no different – sales teams should do a complete cost analysis before they put a new program into play. There is nothing worse than launching a new sales compensation plan, only to have to redact it because there is something fundamentally wrong with it and it's costing more money than it's generating.

Factors such as ROI, driving appropriate behaviors, incentivizing agents and cost are key metrics that need to be considered and accurately modeled before launching a new plan.

3. Perfect the launch
Rolling out a new compensation plan isn't as simple as pushing a button. Many sales teams opt to launch new payment programs in a series of steps. Between the time of initial design and actual roll out, business conditions change. Mergers, acquisitions, product spin-offs, market fluctuations, economic activity and other factors can play a huge part in successful compensation plans. By integrating a new program in steps, organizations can avoid taking losses and make changes as necessary.

By taking a critical look at the math and modeling the impact, sales teams will be in a better position to launch their sales plans, thus ensuring the success of the sales team in general.