I find it interesting that so many of my conversations with CEO’s include frustrations with their unmotivated or complacent salespeople. Most of them wonder what causes this and how it can be changed.
When it comes to salespeople, there are three primary methods to keep them motivated:
- Pay-Based Compensation
- Recognition-Based Compensation
- Award/Reward Based incentives
Pay-Based Compensation can be straight commission, but it is more common to see a combination of salary and commission. I’ve seen base salaries as low as $12,000 and as high as $150,000 with commissions having the same wide variety of ranges. Personally, I like compensation programs that are weighted most heavily toward commissions. Salespeople that gravitate toward plans with higher base salaries tend to prefer security (they get paid whether or not they sell and succeed) while those who gravitate toward plans with higher commissions prefer the unlimited upside (they get paid what they’re worth). My comparison between the elite top 5% of all salespeople and the bottom 5% of all salespeople shows that the entire top 5% are motivated to earn more money while the bottom 5% are not.
Straight commission scares salespeople away – but it only scares away the group that feels entitled. As long as the company is subsidizing a salesperson’s ramp-up , the time it takes until the pipeline is filled and producing consistent business, there is really no risk for a competent salesperson. You can download my White Paper, Sales Longevity – The Science of Predicting Sales Turnover, for my formula for establishing the ideal ramp-up time and New Salesperson ROI.
At the other extreme, it is my personal belief that high base salaries never create the sense of urgency needed to get salespeople selling for, as opposed to representing, your company. Of course, dramatically changing plans isn’t the answer either. When Objective Management Group evaluates a sales force, they usually find that the majority of the sales force is either motivated TO earn more money or NOT TO earn more money. When they are motivated to earn more money and have a plan that is mostly commission-based, there is alignment. When they aren’t motivated to earn more money and have a plan based primarily on salary, there is alignment there too. But the latter example is indicative of the team that appears to be complacent. The real problem occurs when the team is on a pay-based incentive plan and they are not motivated to earn more money. That’s an example of either a plan that isn’t working, or a company that selected a whole lot of the wrong salespeople.
For a complacent team, there is greater reason to supplement with Award/Reward based incentives but most companies fail to introduce programs that are effective. It is important to design an incentive program that can reward anyone and everyone, as opposed to the salesperson who sells the most. For example, if you need your salespeople to find more new opportunities, you might design a program that will provide awards to the salespeople who receive the most referrals and introductions, the most new appointments, the most new accounts, the most sales to new customers/clients, or even the most new products into existing accounts. The other important factors are the length of the contest – it should be short – no more than 90 days, and the awards – salespeople should tell you what they want and not the other way around.
Recognition based incentives are often used in conjunction with Pay-Based Compensation Plans and work best with the plans that rely more heavily on salary than commission. Presidents Club, Winners Circle, and Million Dollar Club are the most common terms associated with plans like these.
There are many variables that must be considered before determining how a sales force should be compensated. What you would like to happen is as important as your current sales force and their capabilities as well as your cost of sales and gross margin. While plans have to be simple, they aren’t easy to design and you should get help from an expert who can help you consider all of your options in the context of all of your variables.