Developing A Sales Compensation Strategy

The first step in creating an effective sales compensation system is to develop a strategy that is derived from the objectives of the organization and its business strategy and that is a good fit to the context within which the organization operates. The importance of sales will depend on that context. A monopoly with no substitutes for its products may view sales as automatic and requiring no special effort. An organization selling a product that is a commodity, with many competitors, may view sales as its primary focus… its ticket to survival. How important sales are to an organization should determine the resources committed to generating sales and the amount of attention paid to how much and how salespeople are compensated.

Given these realities, it is necessary to define the context within which sales activities are performed and to formulate a “good fit” sales strategy. The context is defined by a number of considerations:

  • the nature of the product(s) the organization has to offer in the market: the economics associated with it; its competitiveness with others providing it; the existence of substitutes; brand recognition and strength; current market share
  • the nature of the customer: the needs and priorities of potential buyers; the image of the product with prospects; economic ability of prospects to afford it; value of the product to customers; existing customer loyalty; significance of product relative to customers’ total purchases
  • the nature of the sales process: typical timeframe; sales channels; role of various sales and support personnel in making the sale; points of contact in the organization
  • the nature of the labor market for sales personnel; how much and how competitive organizations pay; the supply of the needed knowledge/skills; the demand for critical knowledge/ skills; current and evolving competitive conditions in the industry

While all of these are important considerations understanding the role of sales personnel is perhaps the most critical. In some instances, the “sales representatives” serve as relationship builders and conveyors of product information (e.g., pharmaceutical reps calling on doctors). In other situations, the representative makes the sale (e.g., call center outbound sales personnel). With the advent of new technology many sales personnel never see the customer (e.g., outbound telemarketing reps), while others practically live with the customer over extended periods (e.g., reps selling enterprise-wide IT systems).

Given the wide range of variability in the role played by sales personnel it is typically folly to attempt to mimic what other organizations are doing with the sales plans. Certainly a program designer must be aware of the compensation levels offered by competitive organizations, to ensure the program will attract and retain the quality of personnel required for success. 95% of getting it right is by understanding the role played by sales personnel and the significance of that role. Once that is understood the organization can determine what would constitute the ideal package of behaviors and results expected of the sales personnel.

An excerpt from:Effective Sales Compensation Strategies & Programs. Email to request a copy of the full article.