Sales bonus schemes can cause some heated discussions, that’s for sure.
Earlier this week I had a half day session with a business owner to review the bonus and reward structure for the sales team next year.
The conversation came out of a separate meeting two weeks ago when we discussed the overall sales performance, where it became evident that elements of the senior management team viewed the sales bonus system as a universal cure all.
Simply put, if the sales commission plan was right, everyone would work hard and the sales targets would be achieved.
So that, if sales results were falling behind, it’s because the commission plan is flawed.
It’s not the first time I’ve heard this.
What do you think?
Common Comments About Sales Bonus Schemes
It should be capped, otherwise the business ends up paying too much.
The best sales people will come to us because of our sales bonus scheme.
If we get the sales bonus scheme right, I don’t need to motivate my sales team, the money will do it for me.
We don’t pay a very high basic because we have the best commission plan in our industry.
Good sales people only get out of bed for their bonus.
Lazy sales people are happy to exist on their basic salary.
Let’s change it every quarter to keep the sales team driving hard.
The more factors we but into the sales bonus plan, the easier it will be to legitimately minimise payouts.
Let’s base the sales bonus scheme on just one element…payout is only on new business closed.
I’m sure you can add your own good and bad versions to this…
So What’s to Consider When Designing Your Sales Bonus Scheme?
I always start with behavious and activity.
But beware, I start here because I have faith in the sales process.
Such faith that I know that if the sales process is worked at the right level, in the right way and with good intent…the sales results will follow.
Therefore – good sales bonus schemes drive the behaviours that work the sales system.
And, great sales bonus schemes drive great sales habits.
Exceptional sales habits.
The same habits that will contribute heavily to long term, sustainable sales growth.
Think I’m labouring the point? I’m really not.
Winning sales habits are critical to winning sales.
What Do I Mean by Behaviours?
I want the sales function to commit to a few key things:
To regularly commit to:
- A set number of hours coaching per week – the onus is on the manager and the sales person to sort this out.
- An absolute, behaviour changing number of hours in personal development per week – that improves their skills, mindset, value to themselves, their team and their customers.
- Following a sales process, we’ve agreed works.
- Being ruthlessly honest in their forecasting, based on a judgement score.
I like honesty.
This means I don’t need potential deals talked up to get out of a tough conversation.
I’d like the tough conversation now so we can pull out all of the stops before the conversations get a whole lot tougher, and the stakes far higher.
How Does this Work with Activities?
Activities is all about doing the right thing every time, as often as you need to do it to get the results you need.
Quick side bar here, I think every sales guy is a total enigma until we’ve collectively worked out what his/her sales reciepe is. This all comes as part of helping them generate the most accurate sales forecasts possible
What this means in that I’m unlikely to set any hard sales activity figures because I know some sales guys will get there results in totally different ways.
Big caveat – slackers don’t get this gentle treatments. It’s a one time deal…we’re all adults until someone tries for a free ride.
Second big caveat – activity is around working to your highest sales potential.
Is the sales bonus scheme driving the optimum level of activity, in the rights areas, at the right time, following the agreed working process, so that the customers and prospects get what they want, when they want, how they want?
Ask yourself…Are you designing a sales bonus schemes that makes a better person?
Does the sales bonus scheme give them a challenging stretch goal?
Or are you guilty of setting a sales bonus schemes that simply uses the sales guy as fuel in the sales engine?
Works him/her hard but doesn’t give him anything back?
So, activity wide, no hard and fast rules.
Ok, it’s non-standard.
It’s not a deal breaker.
So, get the activity and the behaviours right and the sales process and you’re more than half way there when you chuck in a heap load of sales coaching from the sales leader.
Trust me, the sales coaching element is what makes it all come together and the magic work.
Behaviours + Activity = Great Sales Habits + Intent = Success
Sales Bonus Schemes – The Nitty Gritty
Now, this is where your key company objectives really come into play.
What are your three key absolutes you must have achieved this quarter, this half year, this year in terms of business results and sales function.
Look at this in the context of the sales process. This is where having a sales process really helps.
Review it in terms of what the customer base/industry/business/sales team needs.
Look at it in line with base goals, stretch goals and ultra stretch goals.
Consider the split between individual targets, group targets, business targets and who should be rewarded.
Having complex sales bonus schemes helps no-one.
Having simple one dimensional sales bonus schemes invariably hurts everyone. Imagine the horror where a sales guy is targeted purely on new business generation….
It might also help to consider sales bonus schemes in the context of good housekeeping. It’s a set of guidelines that does right by all parties.
Everyone wins because it’s a reminder and a reinforcement of what good sales behaviours look like.
Some Critical Sales Bonus Schemes Factors
Contact firstname.lastname@example.org for a list of all the factors you might want to consider when designing your sales bonus schemes.
Some are more appropriate to new business teams, or account development teams, internal or external sales, but it’s a comprehensive list providing example sales bonus schemes for you to adapt and adopt.
If you’re going for the ultimate ‘uncapped bonus’ plan then for goodness stake, check your numbers, and the potential that the sales person has to actually achieve ‘uncapped’
There are a dozen ways to cap uncapped sales bonus schemes…. here are a few and I heartily suggest you don’t use these small minded tactics.
Don’t claim it’s a uncapped sales bonus scheme and cap the bonus earning potential by:
Making the territories so small that there is not enough opportunity to make the numbers
Flood an territory with sales reps so they end up fighting to make their numbers.
Failing to innovate new products/services/packages so that the sales team are selling form a weakened position.
Trying for high numbers on a product/service that is near it’s life cycle end.
Try any of these and see how fast your sales team drop out. Uncapped should mean uncapped.
Summary: Sales Bonus Schemes
Remember the following.
Activity is key, but may not be universal.
Behaviours should be universal.
Everything relies on measurement.
Everything relies on management supporting the sales bonus schemes with practical insights.
All sales bonus schemes should be tested against actual sales potential in the market.
That means the greater the clarity you have around your sales process, the greater control you have over the sales levers that drive performance, which means you can more keenly design sales bonus schemes that are good for business, good for motivation and morale and good for sales team earnings.
A good sales bonus scheme will not make your sales team better than they are.
A bad sales bonus scheme could kill your sales function – check out what happened to this software company who decided to just focus on new business development – read a their case study here – How a Sales Audit Uncovered the Real Reason for Falling Sales
Sales bonus schemes work when the intent is good, there is high levels of clarity inbuilt with the metrics and they are fair.
To discuss any aspect of your sales bonus schemes and how they might best be structured for you team, let us know.