Coming from someone who has made a career in sales this may seem like an odd question, but are pure sales-based commission plans the right way to incent reps and SEs? After giving it some thought as of late, I believe that answer to be no.
Just to be clear here, I’m speaking specifically of the how, not how much.
Before you dyed in the wool reps and SEs stop reading and write me off as an egalitarian idealist, reflect on the following:
- Do quotas put our needs ahead of the customer?
- Do time-based (e.g. quarterly) quotas incent us to close the deal before it should?
- Does this behavior promote short-term gains at the expense of longer-term results?
- Does any resultant behavior negatively impact the customer’s perception of the company? of us?
- Does it build trust with your customers?
- Could it incent us to recommend solutions that aren’t in the best interest of the customer?
I believe the answer to these questions is YES! Unless you can offer a staunch justification of no for these questions, hear me out.
What if we were all measured on customer satisfaction scores, or how many references we are able to obtain, or by how many customer referrals we receive, or by how many junior reps we mentored? There will always be a place for sales-based rewards, but if we don’t look first at rewarding long-term trust and relationship building, is it any wonder customers will do almost anything to avoid our calls?
Customers actually LIKE to buy things. Shouldn’t customers enjoy working with us?
If you like your job-especially as a VP of Sales/Engineering-it’s probably not a wise idea to muck with the commission spigot overnight. Take a phased approach:
- Make base pay a larger portion of total compensation (upwards of 60% – reps; 70% – SEs). If we can’t put food on the table if a deal doesn’t close, most of us will stop at nothing to get the deal and nothing else you do will change that. Overly “hungry” sales teams do indeed bring in more revenue in the short term, but as a consequence burn bridges long term.
- Add a customer satisfaction portion to variable compensation. Start with 10-20%.
- Round out your customer focused incentives and get it closer to 50% of variable compensation. Ensure your metrics are encouraging long term partnering between various sales teams and customers.
A change of this magnitude will almost certainly result in the voluntary attrition of some sales team members-probably even some high performers. I would make the case that these are the folks who are not as in tune with their customers’ long-term needs as they should be. They are likely the same folks who change jobs every 2-3 years after they are able to make some sales but have difficulty building lasting relationships that most large companies are trying to develop today with customers.
Every situation is going to be different so fine tuning of the percentages can take quite a while, but there is definitely an upper limit to my methodology. I think most people can visualize what would happen if reps and SEs were mostly compensated on customer satisfaction. You would have us fighting even harder for discounts than our customers at the expense of shareholders. Finding the right number is a quantitative exercise assuming sales management has both access to past performance data and a repeatable sales methodology in place that minimizes the variability in forecasting/revenue generation. More on this last bit in a later post.