Sales Compensation Trends
In the coming weeks companies will start the cycle of updating their sales compensation programs for next year. Sales compensation is a critical enablement lever. When done right, it can have a tremendous impact on your strategy and the economics of your sales engine.
We see seismic shifts in sales compensation coming over the next few years. To help you get ahead, we’ve identified five compensation trends that every sales organization should be thinking about. These trends go beyond the common elements to review in the normal planning cycle. Assessing these trends will help position you ahead of your competition.
Trend 1: Closing the Gap between Hunters and Farmers
It’s no secret that new business reps get paid more than their counterparts that manage existing accounts. Most organizations value new business more. And as a result, they’re willing to pay more for new revenue vs. retained or upsold revenue. However, this is changing as organizations continue to rely on a land-and-expand selling model. The current sales motions for farmers look increasingly like new business motions. Sales organizations are reconciling this with increased incentive opportunities for farmers. We predict more convergence in total pay between the two roles.
Trend 2: Rewarding the Team-based Sale
Modern selling requires more and more selling resources to close a deal. And each of these resources need to be properly compensated based on their contribution to the deal. Simple overlay quotas or crediting mechanics are challenging and confusing. We believe a different approach is emerging that will change how various individuals get compensated in a team sale.
This shift begins with how incentive and total pay is allocated. We’re seeing pre-sales/engineers/subject matter expert team members taking a bigger share than ever before. At the same time, the role of the traditional new business rep is being redefined, which is impacting their incentive plans. New business reps will be increasingly rewarded for their role in just one piece of the sales process.
Trend 3: Differentiating Incentives by the Lead
The battle over the new lead continues. Marketing budgets are growing and their prominence over sales is increasing as they take on lead generation activities. However, similar changes are happening within the sales function. Many sales teams are shifting their emphasis to own more and more of their pipeline.
To enable this transition, companies are using incentive multipliers to reward differently depending on various lead factors – such as lead source. More incentive is paid for the rep-generated vs. marketing-generated opportunity. This model aligns with the cost of acquisition for each opportunity. It also encourages the rep to develop more of their own pipeline.
Properly executing the mechanics of this trend is not for the novice sales organization. A thoughtful balance is needed between incentives and data management to minimize potential adverse effects.
Trend 4: Using Data to Think Beyond Revenue
In sales compensation design, what gets measured, can get paid on. Data-driven sales organizations are turning data into insights to redesign their plans. The increase in data is leading to greater understanding of the selling effort at the deal level. With more transparency, plans can adjust to compensate for the efforts and outcomes that drive the business.
Unfortunately, too many reps still don’t understand how they get paid, minimizing the impact of thoughtful plan designs. But with real-time data access, reps can have greater visibility into the specific reward elements. Incentives can be adjusted to align with multiple factors, including: 1) How reps are performing against their goals and objectives. 2) The type of revenue they’re generating. 3) Deal profit levels. 4) Product or service bundling scenarios and discounting impact. Thanks to better technology, comp admin systems can automate these adjustments. The result is more effective designs and enhanced rep engagement with the compensation plan.
Getting Ahead of the Trends
The sales function is undergoing significant transition in response to today's complex selling environment. New thinking and more sophisticated enablement efforts are needed. This is especially true when it comes to sales compensation plan design. Don’t fall into the trap of blindly applying ‘what worked last year will work next year’ thinking. This approach will lead you astray in a short period of time. As your organization begins their review of comp plans for next year, consider these trends. Explore the ‘what-ifs’ so you can give your organization an edge.
About The Author
Ralph is a partner with The Brevet Group, and for 20 years he has led sales performance teams in the United States and Asia. Recently he also served as a sales leader in both the media and technology industries. Ralph’s work has focused on a unique blend of management consulting and sales enablement to help companies execute their sales strategies. Prior to this role, Ralph was the APAC sales effectiveness leader at Mercer.