The topic of sales commission structures and whether they should or shouldn’t exist is a widely debated one. Whatever your view, the fact is the vast majority of sales teams are operating with one so I guess at least for now, there’s a strong argument for them as opposed to against. What I can say from experience is there are signs your commission structure may need a re-think. Look out for the following:
Is there’s a flurry of new deals won shortly after your quota period ends
If you find that there’s a wave of new sales that come in shortly after the month or quarter deadline, you’ve probably got a commission structure that heavily incentivizes hitting a target but doesn’t incentivize performance over the target, certainly not in an attractive enough way. Your sales people are ‘sandbagging’ to give them the best chance of hitting their revenue goals for the next month or quarter rather than helping the business to reach the best possible number of new sales for the current quota period.
Is your commission structure jackpot or bust?
For a brief moment in time, I implemented a commission structure which only paid out if the sales rep hit their quota in full for the quarter, it wasn’t one of my better decisions. There are things that can happen outside of a sales reps control, particularly in the environment I worked in with a longer sales cycle and this commission structure was brutal. It created desperate sales people and one thing’s for sure, good decisions never come from a desperate sales person. Ultimately, it just wasn’t fair on the sales team. Put yourself in the shoes of your sales team, think about them as people that have responsibilities and pressures outside of work, is your commission structure creating stress and worry? If it is, think about how you can remove it so you’re not distracting your sales team away from doing a great job of selling.
Does it take to much time to administer?
If you find that each time a commission form is completed there’s a battle over the amount due to be paid between sales manager and sales rep, or indeed finance and sales then not only is this hugely demotivating to any sales person who feels they’ve slogged their guts out to hit quota, every conversation is an incredible waste of time when it can be spent talking about how to win more business. So if getting commission paid is as hard as winning a new client, take a look at how you could make it easier.
Your team are awarded for selling the highest price not listening to the customer
Whatever the ‘highest’ price means for your company, whether it’s selling the most expensive product, multiple products or selling long-term contracts etc, if your commission structure awards the highest value deal, your sales reps interest is how do I get the most money from my prospect, not how do I provide the most value to my prospect. When that happens the listening stops and you get product pushing of things your prospects aren’t interested in. Of course, we want to see lots of high-value deals, but we shouldn’t be distracted by the most obvious thing which is the price tag someone just paid. What about the value of the opportunity lost that could have been won if the prospect had been listened to and their needs had been met? On the flip side of that…
Does the topic of discounting cause tension?
Have you ever had a tricky conversation with a member of your team, you want to win the business and offer a sizable discount to get the deal in quickly, your sales reps isn’t happy with the decision, he/she would rather it took a bit more time, got a higher value deal and got more commission. Your interests aren’t aligned and it’s causing friction. Talking about friction..
Is there friction in your sales team?
Have you overheard squabbles in the team about who is due the next hot lead? Or are fingers being pointed about why some members of the team get all the large leads? Or have you had to create a document ironing out who gets the lead when it’s been targeted by a handful of reps? If any of these sound familiar then your commission structure may be turning your sales team into a hungry pack of wolves and probably damaging the team spirit you’re trying to create. Have a think about why it might be happening and see if you can change the structure in a way that gets rid of it. A few years ago I implemented a commission structure that allowed a rep that delivered a new deal valued at 15k the opportunity to earn the same amount in commission as a rep that won a new deal at 30k. Truth is, every deal was valuable to the business and we saw more benefit in developing reps that were happy and successful looking after their size accounts than creating an environment where salespeople were constantly gravitating towards big leads and big deals. We wanted everyone happy with their own goals, make sure your commission structure isn’t getting in the way of your team’s happiness.