The 4 benefits of a well-designed sales force compensation plan
According to the book, ‘’The Complete Guide to Sales Force Incentive Compensation’’, the authors (Zoltners, Sinha, Lorimer), “variable sales force compensation – or incentive compensation – represents a major investment for many firms.
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Companies spend millions each year on variable sales force compensation – approximately as much as they spend on advertising. Almost all companies use some form of variable compensation for their sales force, including bonuses, commissions, trips, or other awards that are tied to the achievement of performance outcomes."
In Ghana, the average salesperson is compensated in one of three ways: earning a percentage of cash his/her total cash compensation through performance based incentives through performance-based incentives; or those who earn 100 per cent of their income comes from variable pay that is tied to performance, (i.e. straight commission); and those who earn 100 per cent salary with no incentive opportunities.
Hindrances to implementation of sales force incentive plans
In my work as a sales consultant, I recognise two reasons which hinder many businesses in Ghana from implementing a well-designed sales force incentive plan. These are: lack of respect for salespeople, and the perceived cost of a compensation plan.
• Lack of respect for salespeople.
Very often in my interaction with businesses, you get the impression that the salespeople are not regarded in the scheme of thing.
Probably, this is the result of the notion that anyone can sell, and second that selling doesn’t require any expertise.Such mind-set creates a business culture where the commissions/salaries being paid to salespeople are miserable. The message here is simple. Salespeople aren’t VALUED!
• Cost of compensation plans.
Some other companies also see the cost of implementation a well-designed incentive plan as too high which they can’t afford.
The percentage of commissions and bonuses pay-outs, cost of non-cash incentives and even for those who pay straight salaries, the other perks included in the offer.
Under the guise of concentrating on core businesses, some industries have even outsourced their entire sales functions to third-party recruitment firms with the view to ultimately avoid the cost associated with sales force incentives and compensations.
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Benefits of a well-designed sales force incentive plan
There is enough evidence to suggest that the effects of a sales force incentive programme transcend both the lack of respect for salespeople and cost. According to the book, The Complete Guide to Sales Force Incentive Compensation, the authors (Zoltners, Sinha, Lorimer) made an emphatic statement based on their best-practice study that, “ The sales force compensation plan is an important driver of sales success.”
For example, a close look at the four categories of sales force effectiveness drivers – Shapers, Enlighteners, Exciters and Controllers - show that compensation is the only driver placed in three out of the four categories within the framework, hence its importance.
Benefits of a well-designed plan:
1. Attracts and retains the beat salespeople. As you may be aware talented and high performing sales professionals are difficult to come by in the sales industry. These elite salespeople able to exceed target achievements are motivated by aggressive and rewarding sales compensation packages.
Without a well-designed and implemented plan, you won’t be able to attract the super salespeople nor even able to retain above average salespeople who will look elsewhere for opportunities.
2. It energises sales people. Selling is one of the loneliest jobs, as well as individualistic. There’s very little in-situ support in the field. Salespeople face more rejection in a day more than many people get in a year or a life-time, and as a result require a “positive reinforcement for success”, which is an attractive compensation plan.
On the contrary, if the compensation plan doesn’t energise your salespeople, expect them to begin looking elsewhere for a job or selling other products apart from yours on the field.
3. Motivates salespeople. One of the key outcomes of a good compensation plan is it ability to motivate salespeople to embark on the right sales activities and show the best-practice behaviours likely to drive “high levels of customer satisfaction) and consequently excellent company results.
On the other hand a poor compensation plan will result in de-motivated salespeople who will not work hard or will place more emphasis on contacting the wrong customers, selling the wrong products, as well as embarking on unproductive selling activities.
4. Provides enthusiasm and inspiration to salespeople. An effective compensation plan can be a source of enthusiasm and inspiration to your salespeople. High performing salespeople are driven by passion for what they do. Enthusiasm is everything in sales, so the question is why kill that in your salespeople by implementing a poor compensation and incentive plan? You don’t want your salespeople to feel discouraged and disengaged from their role to generate revenue for the business.