A short advisory video by Henning Schwinum explaining how to design effective sales compensation plans. The speaker defines the plan’s purpose (to encourage desired behaviors and allocate effort across products, clients, and funnel stages), outlines factors that determine plan structure (team roles, lead type, goals, budgets, sales cycle), and gives a numbered set of ground rules: make plans transparent, use contract value or timely metrics for payout, provide frequent/instant gratification (weekly/monthly/quarterly), make plans open-ended and reward every dollar sold, reward against quotas with sliding scales, include a windfall-opportunity clause, make plans achievable and legally sound, and keep plans simple.
Chapters
Writing a good, solid compensation plan is a critical step for the success of your business. The purpose of such a plan is to encourage the right behaviors across the entire team. What products or clients to focus on, the split between new and upselling, the time spent on each stage of the funnel, minimum goals to hit. Your plan sets those expectations and standards and it drives results to achieve the overall team and the overall organizational company goals. The structure of a sales compensation plan varies by business and it's typically determined by factors like the team organization. Do you have functional separation between SDRs inside and outside sales hunters and farmers, Key accounters. They each require their own plan. The structure is also determined by the available resources. Do you work with warm leads or does the team cold call? And by the goals, the budgets and the targets. Do you need to focus resources on retention or renewal or do you only go after new logos? There has to be a compensation plan for every member of the sales team based on their role, their territory, their experience, the length of the sales cycle, the type of deals they engage in. Like other sales leaders, I have written and executed sales compensation plans for many years and like others, I am opinionated as to what works and what doesn't. Let me share some of my ground rules that I think have to apply to all compensation plans. The first one it has to be transparent to the salesperson. If it takes weeks to calculate revenue or profitability, use contract value instead. Debt for your compensation plan. Provide instant gratification for a sales bonus. That means sometimes weekly, more often monthly or quarterly, but definitely not once a year. Make it open ended. Reward every dollar sold unless you want your sales team to stop selling. Number four Reward against goals. A quota or a milestone. Not with a flat rate, rather with a sliding scale that provides more opportunity as the rep meets and exceeds their quota. 5. Have a windfall opportunity clause that protects the business and ensures fairness. Make the plan achievable. There's really not ever a reason to make a sales plan that sets the salesperson up for failure. Number seven make it legally sound. You don't want to end up in the news or in a courtroom. And finally, number eight. Kiss yes. Keep it simple. Remember, you want to motivate, not discourage or confuse. Contact us if you want to find out how a fractional or interim sales leader may be able to help.
