Whether you're updating your compensation plans in your existing cloud-based system or implementing a new sales commissions management application; for best results, avoid these five common mistakes that (otherwise) smart people often make in sales commissions management projects.
1. Definitions of Sales Data not Documented
Most sales organizations these days are maintaining their sales data in Salesforce or other similar cloud-based SFA systems, and of course, they have their compensation plans documented, but have you every noticed that documentation of the specific sales data in Salesforce or other SFA is totally missing from almost all compensation plan documents today? In my experience, very few organizations are maintaining a technical document to define the sales data that constitutes the basis for quotas and commissions. Hard to believe, given the business-critical nature of the sales data and the huge amount of money expended on sales commissions, right?
To avoid this all-to-common pitfall, create and maintain organizational documentation of the sales data (API names of objects, fields, etc) that constitutes the basis for quotas and sales commissions with sufficient detail that a Salesforce (or other system) report can be created from the description. For example. if there are different commission rates for "New Logo" vs "Renewal", document the API names of the fields and values that map to those rules in the compensation plan. Create non-controversial reports that represent the basis for quota and commissions and socialize them throughout the sales organization.
2. Overly Complicated Compensation Plans
All too often we find that very few people in a sales organization actually understand the commission rules well enough to communicate them and demonstrate the math. This creates tremendous friction at multiple levels of the organization. Salespeople cannot be incentivized by formulas or math equations that they don't understand, Sales Operations has difficulty reconciling the results generated by automated systems and new changes in rules or rates are difficult to implement due to the sheer complexity of the rules. In short, the disadvantages clearly outweigh the advantages.
To avoid this mistake, just apply the old KISS principal. Keep it Simple Salespeople! Reps can only be incentivized by what they can easily understand. If almost nobody in the sales organization knows how to do the math for the commissions you're doing it wrong. Just saying... : )
3. Complex Work-arounds for Discounts and Variable Margins
We've seen a wide array of bizarre commission formulas over the years that were intended to deal with the reality that margins often differ between sales deals. These often seemed to frustrate both Sales Ops and Sales people not to mention the inflexibility and cumbersome technical overhead they create.
In my experience, the best way to handle variable sales commissions for sales channels where discounting is a factor, is to commission on sales margins rather than gross sales. Yes, this means that you need to establish the ability to maintain data on costs in your SFA, but in my view, this is a worthwhile effort that will enhance your business intelligence and render a variety of welcome benefits above and beyond sales commissions management.
4. Insufficient or Untimely Visibility of Results
Poor visibility comes in a variety of forms, including non-timely results, lack of granularity, difficulty with reconciliation, hidden math equations etc. The bottom line is this: If you want your salesperson to be incentivized by sales commissions, she needs to be able to see and understand her results in a timely manner. She needs the ability to reconcile the results herself and feel confident that her commissions are accurate.
So, if you haven't gotten out of manual spreadsheets into and automated sales commissions management system yet, or you're in a system that isn't rendering timely visibility of quota attainment and commissions for your team, it's time to make your move.
5. Compensation Plans Misaligned with Desired Performance
To put it in plain english: Some sales organizations have bad compensation plans. We could give these bad comp plans the benefit of the doubt and say they've been outgrown by their organizations... But really, some just seem to have never been a particularly good idea to begin with... I've seen some comp plans that I figured must have started out their life as a few notes scrawled on a cocktail napkin by a VP in Cabo San Lucas after 3 pitchers of Margaritas 10 years ago... Then they got stretched, morphed, extended and subverted by teams of otherwise well-meaning Executives and Sales Ops folks and somehow never got thrown in the proverbial recycle bin out of some kind of organizational inertia. If your organization has compensation plans like these, it's time to move on and make a fresh start! Compensation plans and systems should be designed for a win-win of organization and sales people featuring timely visibility of results driven by rules that are easy to understand, goals that are both reasonably attainable and in alignment with the objectives of the organization. It really is that simple.