7 months ago
February 21, 2017

3 Reasons Why Your Sales Compensation Plan is Holding You Back

Your sales compensation plan might be holding you back when it comes to achieving your sales targets. Check out 3 reasons why.

Rhys Metler

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The purpose of your sales compensation plan is pretty clear and straightforward: reward desired behaviours in your sales reps. What isn’t as clear is whether or not it’s actually working for you. One wrong move when designing your plan and you could have a recipe for disaster on your hands.

To ensure that your sales compensation plan is appropriately rewarding your reps and helping them achieve the sales targets you’ve set, you should assess its effectiveness at least once a year. During your assessment, if you see that your sales compensation plan is holding you back, one of these three reasons might be the culprit.

Unrealistic Growth Expectations and Goals

It’s good to be ambitious, but not to be unrealistic. It’s not uncommon for sales managers and higher ups to get ahead of themselves when it comes to creating their sales compensation plan. They have big ideas, big sales targets, and high growth expectations. This happens time and time again, especially for startups and businesses that are currently expanding. Growth potential must be fully understood before a sales compensation plan can be designed, so you know how to get to where you want to go.

Unfortunately, unrealistic growth expectations mean that you can be creating a sales compensation plan that doesn’t effectively incentivize your sales reps and ultimately holds them back. To come up with numbers that are achievable, start from your ultimate business goals and work your way backwards to understand how many leads, meetings, and opportunities your reps will need to attain in a given week, month, or year, in order to meet the goals you’ve set.

Revenue quotas that are unrealistic will do the opposite of incentivizing—they’ll actually lower morale because they’ll be seen as unattainable, so why should your reps even try? Your sales targets should be challenging but achievable. Your quotas should be market-based when being set and allocated.

Overly Complex Plans

With so many different business goals, sales targets, and numbers to keep track of, it can be difficult for your sales reps to understand what your sales compensation plan is actually rewarding them for. If this is the case, simplify your plan to improve line of sight.

Use numbers that your reps can easily calculate on their own to measure their performance so they can easily and quickly see how close they are to meeting your goals and also understand exactly what they need to do to achieve them. Your reps shouldn’t have to be mathematicians to figure out your compensation formulas. Their path to success should be clearly illuminated.

Overly complex compensation plans can cause your sales team to focus on the wrong objectives or activities, or spend too much time thinking about how to reach their targets instead of actually doing it.  

Capping Payouts

Regardless of whether you’re using a commission or bonus structure for your sales compensation plan, you should never place a cap on the compensation that any of your sales reps can earn. These payouts are tied to results, and placing caps just means your reps will stop performing optimally once they’ve received their payout limit. They’ll have no reason to stay motivated, work harder, or go above and beyond the call of duty. Caps create poor company culture and decrease morale.

Make Changes When Needed

Your sales compensation plan can be a powerful tool for motivating your sales team. However, if your goals are unrealistic and unachievable, if your plan is too complex, or if you cap your compensation, it’s going to hold you back. If your sales compensation plan is failing you—if you’re not seeing positive results—consider making appropriate changes that will keep your sales team energized and incentivized to meet your sales targets.

Rhys Metler

Rhys is a tenacious, top performing Senior Sales Recruiter with 11+ years of focused experience in the Digital Media, Mobile, Software, Technology and B2B verticals. He has a successful track record of headhunting top performing sales candidates for some of the most exciting brands in North America. He is a Certified Recruitment Specialist (CRS) and has expert experience in prospecting new business, client retention/renewals and managing top performing sales and recruitment teams. Rhys enjoys spending quality time with his wife, son, and two daughters, BBQing on a hot summer day, tropical vacations and cottaging.