I’m half way through an interesting book by Daniel Pink – DRIVE! It’s very interesting and worth a read.
Daniel says the model of incentivizing people with money is outmoded and “rooted more in folklore than in science”.
My initial reaction to this (and I stress this is solely my personal opinion, it’s not based upon research) is “that’s just not right”. It just doesn’t align with what I’ve observed over many years in, and running sales teams. Money talks. (IMHO) – especially for the good reps.
Is my reaction biased because I’m a very coin operated person? Maybe yes. Maybe I’m an outlier to his research.
But then I realized that Daniel’s research wasn’t for salespeople, it was for the population as a “whole” (my speech marks).
Ok, so that may make more sense – I think sales people are different to the general population. That’s what often makes them sales people.
And maybe I should qualify this position even more –maybe my position is even better suited to hunters – the Bus Dev people! The “outside” team. And not so much (still is , just not so much) to “farmers”.
So, what am I saying?
I believe good (not just great) sales people (both hunters and farmers) are motivated financially – more than the general population. In fact, I think many sales people enter the space because they are seeking that extra opportunity to not have a fixed income- they want to be able to make more money.
While factors like recognition/status/satisfaction from getting a job done well do motivate sales people, making more money is still a major driver of their behaviour.
In fact, when you think about these factors, you enter a whole new topic (best covered in another article) for sales management – how do you encompass these additional motivating factors, along with driving behaviour with additional financial reward?
Frankly, any good sales manager should be building a motivating environment, over and above just paying more for better results. A sales manager needs to understand what drives each individual team member - is it being at the top (or bottom) of a “leader board”, is it a natural competition within the team, is it being praised for a job done well or being sought out for input.
And that’s something else unique to sales – its real easy to assess performance! What did they sell for the month or quarter or year? Sales results provide a perfect measurement tool. Results aren’t based upon quality of task achieved or subjective KPIs, they are based upon a number. Whether the individual is a hunter or a farmer – how much net new business was brought in, or how much growth was achieved from an account. It is often not easy to measure “success” for incentives for other roles – leading to (what I call “God” decisions) where the manager decides who gets how much.
So, to part II, how do you build an effective incentive or commission plan for sales?
You start by being very clear on the behaviour you want. What I mean by that is to write down what would an ideal “mix of revenue or sales look like” – is it new customers, is it growth from existing accounts, is it one product category over another, maybe it’s the introduction of a new product? Is it margin or lessening discount behaviour?
Based upon what you want to drive or promote, you then build up the model for commission calculation.
Does it have gates ? “Gates” being certain thresholds. If it does, don’t have too many or it will be seen as too complex or unrealistic.
Now that’s an interesting word – realistic- it needs to be realistic or it will be de-motivating. And you will drive the good reps away – to another company where the plan is realistic and sufficient (to meet their goals) financial reward can be achieved.
What about stretch targets? Do you want over-achievement? If so, don’t cap the plan. That will become de-motivating at that “capped” point.
Is the plan dependent upon things outside the individual’s control? Again, that can be very de-motivating where the individual achieves a great result (doing a great job) but doesn’t get paid because something they couldn’t control is a gate. I’ve seen lots of plans be dependent upon “ the Company making its profit targets”. That’s a pretty big caveat. And one a lot of good reps may stay away from. Maybe there is a condition like that, but if there is, don’t make the whole structure dependent upon it.
Is there a team element, if you’re looking for team engagement – that’s a valid behaviour so a valid part of the plan – just don’t make the whole structure a team bonus. Or that’s all you will drive, a group kumbiya type attitude.
So, depending upon how you are reading this article – are you thinking “how is my existing plan structured?”, or are you thinking “My team are not achieving the “type” of results I want and the incentive plan isn’t working”. Review your plan with those questions in mind.
And once you’ve built it, run lots of scenarios to see how the calculations will perform. How can reps “work the system”? Because if they can, they will. Run it past your CFO, run the scenarios (and more of them) again. Run it past some peers. Ask Indicator to review it (if you’re a Syndicate member that would be part of the program).And if you’re one of those sales managers that doesn’t agree with commission plans (and I know a few, even inside Syndicate) I would challenge you that maybe your base salaries are too high, and your people are comfortable. I believe you could get better sales results from a team on lower bases, and higher variable components – yes, they may work a little harder or smarter, but I bet you will lift performance across the board if you start an element of “extra pay for extra performance”. You will get better per head results, but put a little more into their pockets too. But the net result will be a better bottom line. That’s what I think anyway!