Having a great sales compensation plan in place helps our team to perform better. Unfortunately, many businesses oftentimes overlook this aspect. If you’re in a sales leadership role or vying for one, this is a must-listen episode.
Today’s guest is Rowan Tonkin. He is the Head of Sales and Marketing Solutions at Anaplan. He’s giving us some insights into the importance of making effective sales compensation plans as well as how you can design one. Rowan is from Australia and has lived in London for ten years until finally moving to San Francisco.
Here are the highlights of my conversation with Rowan:
Lessons from Rowan’s coolest sales experience when he was the customer:
Rowan bought a watch at Shinola in Detroit where he had it custom-built and it was delivered in about an hour after selecting all the things he wanted. He felt that personal touch. He didn’t feel he was sold to but he was just getting what he wanted.
Why companies have issues with compensation plans:
The Key Principles to Having and Effective Compensation Plan:
Make sure you can communicate it to them in a simple document. Your sellers must be able to interpret that in a couple of bullet points otherwise you’ve over-complicated that plan. And it’s going to be hard for the salesperson to execute on that plan.
If you have a capped plan for management, that’s okay. But if you have this for your sellers, this could be demotivating for them. There are different options that you can consider such as a 2x capped-type plan or a 3x uncapped or an add-on type plan.
You should have a plan for every role in your organization. It comes down to how much leverage you want over that particular individual.
Should There Be a Cap for Sellers?
Rowan believes there shouldn’t be a cap for direct sellers. The idea behind the cap is you can only earn this much even if you exceed your number. The reason most organizations think about caps is the huge bluebird deals, those we can’t predict are so great that they will blow out the cost of sale to the organization. Have an “If this, then use this…” type of plan for that type of deal.
You wouldn’t want the seller to be sandbagging the deal for the rest of the year. Once they’re close to the cap, they will just move it into next year. This is not helpful to the organization at all.
The biggest issue in compensation is that plan designers or administrators don’t get to set the target. They’re working off someone else’s factor. It’s important to get the quota setting aspect of compensation right.
Having a decelerator is okay if the only other option is a capped plan. Try to avoid the capped plan if you can otherwise have a decelerator in place.
Tips for Sales Managers in Making Effective Compensation Plans:
Challenges with Forecasting:
How to Get Back on Track With Compensation:
Rowan’s Major Takeaway:
Don’t just think of the plan as an isolated component. It’s much more than that. You really need to think about all the processes that lead up to that plan so you can set something in a more equitable and organized fashion.
The Power of Habits by Charles Duhigg
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Donald is the host of the popular sales podcast,"The Sales Evangelist". He is the founder of The Sales Evangelist Consulting Firm where he helps small companies develop killer sales process to scale their business and increase growth. Donald is also an award-winning speaker, sales trainer, and coach. He's a big fan of traveling, South Florida staycations and high-quality family time. Donald has a belief that “anyone” can sell if they have the desire and receives the proper training.