Carrots & Sticks.
By Daniel Warren-Smith
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It is customary in business to reward salespeople with commission proportional to their success. The theory is that the potential “upside” in individual compensation drives them to achieve more. In other words, a salesperson’s motivation comes from the financial benefits on offer.
In truth, motivating salespeople is no different to motivating any of your staff. Your salespeople need to connect with your company vision and see beneficial outcomes for their discretionary effort – beneficial for themselves, but more importantly, beneficial for your customers.
In his book, Drive, Daniel Pink writes about the three major components of motivation: Autonomy, Mastery and Purpose. In the context of your sales team, this is highly relevant.
- Does your team have the freedom to manage their territory? Do they have scope to apply their entrepreneurial flair and creativity to driving new business?
- Does your team have the skills? In addition to deep understanding of the product or service set they are representing, have they mastered the skills of selling?
- In representing your company, is there a higher calling? What outcomes are achieved for your customers when your salespeople are successful in their job?
Only after answering these questions can you address the question of compensation. Motivated salespeople are an incredible asset to any organisation – even more so when their motivation comes from the success of the whole organisation, not just their own financial benefit.
Investing in Sales is seen by many organisations as discretionary spending. You know you need to keep revenue coming in, but the return on a sales salary is different from Cost of Sale of your product or service, where you can measure gross margin returns very clearly. The benefits of your sales investment may not be realised for months, or even years after the cost is incurred.
You need to have clear metrics for your salespeople – both lead and lag metrics – and this needs to be seen by the salespeople as relevant to their success. In other words, the things you hold your salespeople accountable for must contribute to their success, not just another dashboard item for you to report each week. For example, if you set an expectation that your salespeople will attend a minimum number of appointments each week, then they will certainly achieve this – although possibly at the expense of your coffee budget – as they become expert in 30-minute coffee meetings which may or may not lead to closed sales. Rather than becoming the stick with which you “motivate” your sales team, the right metric system can become a key coaching tool, an indicator of the behaviours and activities that lead to and produce successful outcomes.
It is a common fallacy that salespeople live only for the commission incentives on offer. Whilst the variable compensation is important to salespeople, it should never be used as the sole positive motivation tool. Salespeople, like everyone in your organisation, are motivated when they see their efforts contributing to the total success of the company. At best, variable compensation is a risk management tool for the organisation to reduce the amount they pay up front to their sales team; at worst, variable compensation is a de facto management tool used by lazy sales managers. Leaving your salespeople alone to chase down carrots is a dangerous tactic.
Guidelines for Sales Compensation
Make it fair. When your reward system is fair, there is clear Return on Investment on your costs. You avoid overpaying, and compensation links to business outcomes that are important to your organisation. When your reward system is fair, this is recognised by both the recipients of the commission incentives, and by the rest of the organisation.
Make it transparent. A transparent mechanism for calculating and paying commission achieves two things:
- Your salespeople have clear understanding of the carrots on offer for their performance, rather than arbitrary assignment of bonuses by management; and
- The rest of your organisation understands how commission is calculated, and paid, for the deals closed by each individual salesperson. Rather than complicated spreadsheets, there are now commercial products available to manage sales compensation – salespeople can have clear expectation on the rewards on offer, and organisations can manage payments accurately and on time.
At Validity Group, we have spent over 10 years coaching and enabling sales teams for success. A healthy productive sales team is a critical component of a high performing business: talk to us today about tools for enabling your salespeople – coaching tools, software to manage their compensation with transparency, and programs to improve both the skills of salespeople and their managers.