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“Show me the money.” This mantra from the movie Jerry Maguire resonates with sales teams on two levels.
On a basic level, sales representatives are motivated by money, and they want to be paid what they’re worth. But on a deeper level, they also expect transparency, explains Joe DiMisa, Senior Client Partner, Sales Effectiveness & Rewards Advisory Leader at Korn Ferry. “They want to understand how their performance drives their earnings. And those earnings should be tied to metrics based on two things: their historical performance and sales forecasts.”
But what happens when a salesperson’s forecasts and quota achievements don’t align with their compensation? What if they believe they’re earning less than they deserve? This mismatch can erode trust and lead to overpaying underperformers. What’s even worse is that it can dampen the motivation of the rest of your sales team.
In setting compensation, you should have twin goals: rewarding high-performing sales reps and inspiring underperformers to aim higher. The key questions to ask are how to measure sales performance and how can you use sales performance metrics to identify your best performers and inspire those who need to improve.
To optimize your sales team’s performance, your incentive plan must possess four key attributes:
1. Controllable: Salespeople should understand what’s expected of them and how their efforts align with fair and achievable sales goals. The plan should require sales reps to exert effort and growth but still be attainable.
2. Measurable: Your plan must set forth clear sales incentives, and it should give sellers continuous visibility into their sales results. Regular reporting on sales performance metrics ensures sales leaders have the data they need to course-correct as needed.
3. Align with strategic business objectives and the sales leadership team’s key goals: Ultimately, the plan must be designed to drive sales performance.
4. Simple: Give your sales reps a clear target by focusing on three or fewer sales metrics. Simplicity is key to driving performance and measuring it effectively against targets. Setting fewer objectives often yields better long-term sales results.
The traditional approach to setting sales compensation based on performance relies on four types of sales performance metrics.
1. Financial/sales productivity metrics: These metrics, which are the core of most sales incentive plans for direct sellers, focus on measures like sales dollars, margin and units, often measuring volume. Targets should be linked to the organization’s financial success, including gross and net profit, billed revenue, contract revenue and total billed revenue.
2. Strategic metrics: Strategic measures align with the sales organization’s strategic priorities. They can encompass goals like strengthening customer retention, improving customer service and enhancing overall sales quality, all of which contribute to overall revenue and production.
3. Input and activity metrics: These sales metrics assess sales professionals’ day-to-day activities and milestones. These metrics consider factors such as qualified leads generated and sales conversations held. Integrate these measures into your sales incentive plan to help sellers focus on how they can achieve significant milestones.
4. Subjective/judgment metrics: Subjective metrics revolve around defining desired behaviors and personal development objectives for salespeople. Because these sales metrics involve soft, less quantifiable skills, they can be challenging to measure. As a result, these metrics should play a secondary or tertiary role in your incentive plan.
Breakthrough to immediate, predictable and sustainable sales effectiveness
Once you have a well-structured plan in place, determine how often to measure seller performance. Regular check-ups against sales targets allow for tactical adjustments. However, it often takes time for data to reveal meaningful patterns and trends.
Typical analysis periods include monthly, quarterly and semi-annual evaluations. A cumulative period is sometimes necessary, with excellence payouts held back until you can accurately tally the total results.
“Choosing the right measurement period is vital,” says DiMisa. Annual pay can demotivate sales representatives if they fall behind early in the year. On the other hand, standalone measurement periods can encourage top performance but might result in overpayment. “Striking the right balance requires careful, ongoing evaluation,” he adds.
To ensure your incentive plan is working effectively, you should evaluate it based on the following criteria:
“Designing a successful sales incentive plan is essential for your sales team, your business and your customers,” advises DiMisa. Talented salespeople are drawn to organizations that offer fair and rewarding compensation packages. And by retaining your top performers, you ensure continuity and excellence in your sales efforts. At the same time, an effective incentive plan can motivate sales representatives who need to improve.
A well-structured incentive plan is a win-win for your sales organization and your company as a whole. If you need help evaluating the effectiveness of your sales organization’s incentive plan and determining how to measure sales performance, get in touch with our sales effectiveness experts.
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