OpenSymmetry and Sales Management Association continue to explore the many facets of sales compensation plan design in part two of our seven-part blog series, which focuses on team-based sales incentivization. To read more about sales compensation plan design basics, check out part one of the series here.
There’s no one-size-fits-all answer to what sales incentive compensation approach will maximize the likelihood of sales success. There are a number of key considerations and a logical path of decision-making to get to the right answer for your organization. In this article, we address some of those key considerations as well as the role plan design can play specifically in supporting a team-based approach.
The first consideration is what you are selling and how you are selling it.
Ask yourself, “Is it a simple product or service that can be sold by an individual, or is it a complex technology sell or multiyear outsourcing deal that requires a team approach?” To properly answer that question, you must consider the knowledge breadth and depth required to make the sale.
The second consideration includes lessons from behavioral science.
The team approach will only succeed if there is a real and perceived shared interest and dependence on effective teaming. If there isn’t, then especially high performers within the team may perceive team-based payout as a mechanism for reducing their payout if team targets are not achieved. This perception will be exacerbated if payout calculation is dependent on components that the team’s individuals cannot control (e.g. company profitability). A team-based approach must ensure that all roles have the ability to impact the sales effort.
The third consideration is sales strategy.
As go-to-market and sales strategies evolve, so too must the level of teaming required to encourage the behaviors needed to support those strategies. For example, a company looking to increase sales of a diverse product/service portfolio to higher-revenue customers, all while delivering a more customer-centric approach, will need to shift its strategy. By transforming from a product-driven strategy and coverage model to a geographically-based strategy and coverage model the need will emerge for different types of roles to work more effectively together as a team.
If you’ve decided that a team-based approach is best for your organization, you then must define the team. A team can be two or ten people. And the team can be within the function or territory, depending on the product range and customer size and geography. Once defined, you’ll want to shift focus to how to get each individual/role on the team fully engaged and committed to achieving the desired outcome — a single successful sale or wider sales success over a period.
Incentivizing Teaming Behaviors
Here are several approaches to incentivizing teaming behaviors:
1. Team-based design.
This is exemplified by a commission pool. Team-based design is most likely to work if, for example, a multi-functional team achieves a complex, multiyear outsourcing deal or a newly-formed team in a new territory achieves its quarterly revenue growth target. There is a clear dependency on all members of the team contributing to achieve the goal. But how much of the on-target opportunity to assign the team? Typically, the lead commercial seller would be allocated 40-50% of the pool with the rest allocated to other roles in the pursuit team. The interrelationship between individual and team performance is important. Typically, an individual will be expected to achieve a target performance minimum before being able to share in the team incentive or the share of the team incentive might scale up or back depending on the level of the individual performer through a multiplier.
Successful selling is dependent on two or three roles successfully joining to achieve a sale. There are several scenarios, and the dependency is on selling competence. For example, an account manager needs a new business hunter or a product specialist to upsell to an existing customer. A new logo business role responsible for a new product needs a regional sales manager to get in the door with a client in an existing territory. An account manager needs a specialist renewals team to deliver a new contract. In these cases, it is important to decide whether to “double bubble” (i.e. give each collaborator full credit for the sale knowing that they all carry quota which assumes full credit or credit split the opportunity). In this case, it is important to assign the right credit. Typically, companies will have a default split which can be varied based on a more senior level sign-off.
The team, in this case, is less specific. The context is making sure that all sellers and non-sellers have their eyes on maximizing sales across the business. The mechanism can be a specific cross-selling target, carried principally by the account manager or sales manager roles to a referral or finder’s fee either as a fixed amount or percentage of the sales value. The critical element is to make the cross-sell as easy and as compelling as possible. The payout quantum needs to be sufficient, and the process should be both straightforward and fair. The fewer hurdles, the better.
The Wider Team
There are several roles in the sales process where an organization hesitates regarding eligibility for sales incentives. There are a couple of key questions that need to be answered. For example: Do they have any responsibility for the sale, and is a successful sale dependent on their contribution?
You would expect sales managers to carry the team target in a quota-based situation. In a deal-by-deal environment, they would be outside the deal commission but carry a quota for the deal.
Presales roles are a contentious area. Many presales roles would argue that they make the sale, but in truth, there are good and bad presales individuals and good and bad commercial leads. Typically, presales are eligible, but their on-target pay mix is less aggressive than for lead roles.
In many complex sales, there may be involvement from specialist roles — finance, legal, HR in some cases. Roles that are there solely to ensure a compliant sales process should not be compromised by incentivization.
In services or technology sales, it is important to engage the wider client service team. They are unlikely to carry a quota but would benefit from referral or finder’s fee eligibility.
In conclusion, it is vital to understand how and when to successfully use a team element to incentivization. Team-based incentivization can be a powerful tool, but there are a number of dependencies — role definition, teaming skills and culture, and governance of team performance and individual contribution to that performance. In many scenarios, positive teamwork can drive a higher level of sales, but you must understand the sales process and design with care to retain seller motivation.
To learn more about sales compensation plan design that drives performance, join our webcast on September 4. Click here to register.