Every sales team wants a fair, competitive compensation plan. But this goal is elusive for the lion’s share of businesses. A whopping 97% of companies report experiencing challenges with their sales compensation plan, ranging from unrealistic expectations among sales reps to an inability to use the plan to drive sales, according to industry research by QuotaPath. That’s a big problem for businesses.
Not only do businesses need a way to motivate their sales team to sell, but a competitive compensation plan is also an essential component of a business’s revenue strategy. After all, a business’s best chance of achieving its revenue goals is when the sales team is engaged and motivated by a fair compensation structure.
Read: 4 Ways to Eliminate Gut-Instinct Decisions From Territory Planning
A competitive compensation plan is also essential for effective territory planning. If the sales team doesn’t perceive compensation as fair, there’s nothing a business can do to convince the sales team that territory planning decisions will get made fairly either. Moreover, when the sales team perceives territory planning as unfair or biased, the chances are high that the compensation plan will be non-competitive and poorly received.
Let’s explore five key strategies for developing a competitive compensation plan that will support effective territory planning:
1. Ensure Clear Alignment Between Sales Goals and Compensation Structure
For sales reps to buy into their compensation structure, they first need to understand what their company is working toward and how they are expected to contribute. The best way to communicate this information is to align sales goals with the compensation structure itself.
When sales reps can clearly and consistently see how the performance goals they’re expected to achieve align with their compensation, they’re more likely to buy into the compensation structure itself. When sales reps buy into their compensation structure, they become more likely to buy into territory planning decisions that are based, in part, on the same data used to determine compensation. After all, when businesses use a modern RevOps platform, the data used to make territory planning decisions is the same as the data used to establish sales performance goals.
2. Give Reps Full Access to The Data On Which Compensation is Based
Sales reps should never be forced to jump through hoops to monitor their progress toward sales goals. Moreover, they should be able to readily look up how they’re doing in real time—both relative to their colleagues’ performance and relative to the team’s overall sales goals.
Read: 4 Ways To Put Your Customers at the Center of Territory Planning
When sales reps have easy access to the data on which they’re being evaluated, they’re more likely to view the compensation structure as transparent and fair. Thus, businesses should invest in a single, unified data platform that monitors and displays customized sales data for individual reps, including progress toward quota attainment and pipeline health. The data should be intuitively actionable to sales reps. For example, the data should help sales reps figure out how to prioritize among their accounts. This same platform should also make it easy for sales reps to analyze raw data sets and interact with the teams that help generate and maintain data.
3. Don’t Incentivize Short-term Gains Coming at Long-term Expense
Sales territories necessarily need to be adjusted annually or on some other routine basis. As a result, a sales rep’s territory this year could end up becoming a colleague’s territory next year.
This means that sales reps shouldn’t be incentivized to interact with customers in one territory in a way that emphasizes short-term gains over long-term customer relationships. Specifically, the sales compensation plan shouldn’t financially incentivize reps to squeeze out as much as they can from customers, aggressively upsell and cross-sell, or accelerate the sales cycle to close deals before the customer is ready.
If a sales rep inherits a territory where these disruptive behaviors are occurring, it’s likely to depress sales – and inevitably lead to accusations that the territory was assigned unfairly.
4. Be Transparent about Territories That Will be Reassigned
As soon as new sales reps are onboarded, they ideally should be assigned a territory. Unfortunately, it’s common for territories not to be quite ready at the same time a new sales rep is. This leaves the sales rep to twiddle their thumbs at a time when they are ready and eager to hit the ground running.
The solution is to “over-carve” territories for existing sales reps, with the intent that some of the territory will get reassigned as soon as an anticipated new hire is onboarded. While this strategy can be incredibly effective, it’s important for businesses to be transparent with the sales team about instances when territories are being over-carved. Companies need to clearly explain to affected sales reps how the temporarily assigned portion of their territory will be accounted for in their performance goals, and how this portion will be integrated into their compensation structure.
5. Set Ramp Periods Accurately
Ramp periods for new sales reps are not a one-size-fits-all, as sales cycles take differing amounts of time for different businesses. Thus, when a business builds a ramp period into a new sales rep’s compensation structure, it’s critical to ensure the length of this ramp period has been appropriately set. If the ramp period is too long, it’s likely to create the perception – both among the new and more tenured sales reps – that the compensation structure is biased toward new hires. If the ramp period is too short, new sales reps could be set up for failure before they even have a chance to succeed – an experience likely to permanently taint their perceptions of the compensation structure and how territory boundaries were drawn.
Read: 4 Ways to Infuse Automation and AI Into Territory Planning
Taking the time to build a competitive compensation plan is worth the investment. Not only does an effective compensation plan drive revenue strategy, but it’s also a foundational component of effective territory planning. To build a competitive compensation plan, businesses should align sales goals to compensation structure, provide full access to the data that goes into calculating compensation, incentivize activities that promote healthy long-term customer relationships, be transparent about plans to reassign territories, and set ramp periods that are an appropriate length.
Fullcast specializes in helping companies lay the foundation for compensation plans that sales reps perceive as fair, data-driven and competitive.
To learn more about how Fullcast helps organizations use a successful compensation plan to drive territory planning, please visit https://www.fullcast.com/product/plan-collaborate/.
