How to Set Up a Sales Compensation Plan

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How to Set Up a Sales Compensation Plan: Measuring Successful Selling Performance

One critical element of a sales compensation scheme is to measure success of your sales force and whether they are meeting business targets. In order to do so, you need to set effective sales goals and performance objectives and keep a running tally of who is meeting those objectives.  Sales goals should be clearly defined and achievable, but they also need to be challenging enough to motivate sales reps to work hard to achieve them. To determine effective sales goals you'll have to answer some questions. What are the metrics that best reflect sales performance at our company? What are the various dynamics that impact a sales rep's ability to achieve these goals?

"Small businesses can benefit from simple incentive planning that can include comparing each sales rep's goals with their historical performance and reviewing the territories that are being asked to generate the highest and lowest levels of growth," says Shimamoto. "And while it's always good to keep your goal setting calculations simple, they cannot be simplistic.  For example, a goal that requires each rep to grow sales 10 percent annually may be easy for the reps to understand but it may not be a fair goal if the reps work in very different selling environments."

Finally, a company should also set performance goals on the more qualitative elements of selling: teamwork, customer relationships, flexibility, and initiative. A star seller, for example, who also is a lone wolf, may be asked to enroll in a training program to help improve his ability to work on teams. Or an experienced salesperson may be asked to mentor someone on her team or join a new product development strategy committee.

Communication to the sales staff about performance metrics is also key. Shimamoto suggests publishing performance scorecards on a regular basis. Realizing the value of accurate and timely reporting has led to more and more companies adopting Web-based solutions that calculate performance and communicate sales incentive earnings via user-friendly reports. Sales incentive management programs are available on a software-as-a-service basis from such providers as Salesforce.com, Xactly, Incentive, Callidus Software, and Makana Solutions, among other providers.

"Designed and delivered well, sales compensation scorecards can be an eagerly awaited event each month," Shimamoto says. "They can keep the sales force on track and provide just the right amount of motivation to close the next deal or break into a new account."

Dig Deeper: A Sample Commission Form for Your Sales Staff

RELATED LINKS
Motivating Employees
How-to Guides on motivating employees.

The Commission Conundrum
Column that explores the use of a commission-only sales staff.

Managing One-to-One
Article about tailoring offerings to individual employees.

No More Spreadsheets
A run-down of online sales incentives management service providers.

RECOMMENDED RESOURCES
The Complete Guide to Sales Force Incentive Compensation -- How to Design and Implement Plans That Work
A book published by a division of the American Management Association and written by Andris A. Zoltners, Prabhakant Sinha, and Sally E. Lorimer.

Sales Compensation Best Practices: Designing New Sales Plans
Downloadable white paper from online sales incentive compensation services company Incentive.

WorldatWork: The Total Rewards Association
Non-profit organization dedicated to sharing information about compensation, benefits, and work-life balance.

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Elizabeth Wasserman is editor of Inc.'s technology website, IncTechnology.com. Based in the Washington, D.C. area, she has more than 15 years experience writing about business, technology, and politics for newspapers, magazines and websites. Her work has appeared in such publications as Congressional Quarterly, Business Week, Portfolio and Slate.