It may seem obvious, but setting quotas for the National Center for the Middle Market (NCMM) at Ohio State University.team is the best way to grow your company’s revenue. Yet less than 50 percent of companies establish quotas and compensate accordingly, says the
The center found that companies with sales quotas produced revenue gains by more than 10% compared to slower-growing organizations.
While you, the entrepreneurial head of the company, may dread the thought of committing to a sales structure, your salespeople will perform better if expectations are set and clearly communicated. This requires not only sales quotas but also a well-designed compensation program.
Here are some tips on getting sales quotas and sales compensation right.
Involve the right NCMM suggests that the most highly effective sales compensation plans include a broader group, including the CEO and the sales people themselves. This ensures you have a fuller understanding of the organization’s goals as well as market conditions.. Sales managers are the most common people to set up sales quotas in any company. But evidence from the
Reward the right things. Make sure your sales quotas reward the kind of activity the company needs most. Do you need larger accounts to grow revenue? Grab market share by increasing the number of customers in a certain territory? Reduce sales expenses? You may also want to pay for profits, types of products sold, timely reporting or customer satisfaction metrics.
Balance fairness with aggression. You want your salesforce motivated to meet stretch goals, not discouraged of ever meeting the targets set. Depending on your structure, this may mean you need to create different sales goals for different job descriptions, says Kaushik Maitra at Unimrkt Research. For instance, a junior account person may have different responsibilities than a senior key account executive or sales vice president.
Make objectives measurable. The best sales compensation structures contain measurable targets. Obvious targets include number of sales calls made by telephone or in person, and sales volume achieved by certain dates. Don’t forget to measure necessary non-sales activities, such as meeting paperwork deadlines and attendance at training sessions.
Consider all of the parts of compensation. Salary, commission and bonuses are only part of the compensation package. Sales contests for short-term goals, extra training and promotions into management can also motivate sales team members.
Align your compensation package with your industry. Compensation plans that combine salary with commissions and bonuses remain by far the most popular type of reward structure across industries. However, certain industries may tend to offer larger commissions as a percent of total compensation. To avoid the risk of losing good salespeople, always check to make sure your compensation package aligns with the rest of your industry.
Inspect what you expect. No matter what system you set up, you must also conduct regular reviews to ensure benchmarks are met. The worst thing you can do is fail to follow up to see if those metrics have been met, and hopefully exceeded. The history of sales management is littered with companies that created fantastic sales compensation methods and then did nothing to ensure salespeople met those goals.
From the buyer’s perspective
Far too many privately held companies become complacent about customer concentration, letting the organization become dependent on a limited number of customers. Frequently the culprit is a compensation plan that fails to incentivize the sales force to bring in new business.
Poor customer concentration can be a major deal killer when you wish to sell your company. Buyers usually will be concerned if your company generates 20 percent or more of revenue from any one client. Avoid this situation by creating a sales compensation program the drives your team to continually find new clients.
Learn more about building effective sales compensation plans that truly motivate your salespeople.
- The Force Is With You: Building a Highly Effective Sales Organization
- Why Sales Ops Is So Hard to Get Right
- How to Develop a Top-Notch Workforce That Will Accelerate Your Business
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