5 Mistakes to Avoid When Developing a New Sales Commission Plan
By Maddy Osman on Apr 02, 2019
I’m going to start this one with a hefty dose of personal experience.
As I’ve mentioned in previous articles on this blog, my career in sales began at Groupon. There were pros, there were cons, and then there were constant changes. More specifically, there were constant changes to our sales performance metrics and commission structure.
It was unsettling, to say the least, for the sake of providing any sense of stability. From a metrics standpoint, if you’re judged on performance areas that are constantly changing, it becomes incredibly difficult to chase improvement.
In order to pinpoint a weakness, you need trend-based data. And if your organization is constantly changing the data points that matter, trends over time simply fail to exist.
Change gears to focus on commission and you’re talking about something that hits close to home for sales representatives — for obvious reasons. Most often, the incentive for a salesperson to work hard comes from commission potential.
When I left Groupon, they rolled out a new commission structure that did away with all sales reps owning previous accounts sold. With this new change, salespeople became designated as solely hunters or farmers. Those in the former category dealt solely with new business, while those in the latter would be responsible for reclosing previously won business.
No longer being able to rely on hard-won existing relationships with businesses was devastating from a commission standpoint and added a new level of difficulty for closing enough contracts each month to avoid being put on a performance improvement plan.
To be fair, making a change is sometimes necessary for the sake of long-term business strategy. But when your team’s livelihood is on the line, it worth taking extra care.
Constant Changes to Sales Commission Structure Can Hurt Your Bottom Line
People tend to know what they’re getting into when pursuing a career in sales. They know that their earning potential is directly tied to effort and skill— that they’re only limited by hustle or a lack thereof. And if they’re not making the calls, sending the emails, or subconsciously sabotaging their sales close, the money they make will reflect it.
If your organization is constantly changing sales commission structure, it becomes easy to lose trust in company motives. Lack of trust leads to questioning and doubt, which can permeate across an entire sales team and inevitably leave you scrambling to backfill their open positions.
So change sales commission structures with timing in mind. Try to limit changes to yearly or quarterly schedules and make sure you’re implementing them well in the process.
Don’t Make These 5 Mistakes When Implementing a New Sales Commission Plan
Change is hard, especially when it has the potential to negatively impact a person’s paycheck. Because of this, it’s important to make sure you approach any changes to a sales commission plan with careful forethought and implementation.
Here’s what not to do when putting a new sales commission structure in place across your team:
#1: Overvalue the Opinions of Leadership
Your VP of Sales, Chief Financial Officer, CEO — these are naturally going to be the key decision-makers signing on the dotted line. But they shouldn’t be making all the calls.
At the end of the day, these individuals are too far removed from the day-to-day. They don’t know the current strengths and weaknesses of your sales team, nor do they fully grasp how your team works from a sales process perspective.
When developing a new sales commission plan, you’ll want to include at least three to four representatives from your own team to weigh in on the finer logistics. They’ll be better able to provide tangible feedback and champion the plan across the team once it’s rolled out.
#2: Keep Your Sales Team in the Dark
The easiest way to generate distrust is to keep new sales commission plans under wraps until the very last minute. Even if a structure ends up working more in your team’s favor, they might still find it unsettling knowing how quickly changes were decided upon without their knowledge.
Once the decision is made to review and make changes, give some notice. Let your team in on what’s coming down the pipeline well in advance (preferably six months), and provide them with some reasoning as to why these changes will be put into effect as well.
#3: Fail to Test Potential Commission Plans with Financial Models
The best-laid plans are just that without a map to help in navigating them. Rather than simply hypothesizing on the best possible commission plan solution, spend some time plugging them into a financial model.
You’ll want to analyze what each sales representative would have the potential to earn under the new model, in addition to understanding what they could’ve earned in the past based on historical performance metrics. With this information at hand, you’ll be better prepared to anticipate what each member of your team is capable of and set realistic quotas accordingly.
#4: Develop a Plan Solely Based on Driving Revenue
Your sole focus as a business should never be based on revenue alone. There are always a variety of competing factors at play and profitability is most certainly one of them.
Maximizing profit gains as it relates to your sales team will correlate with their productivity. And if their compensation isn’t incentivizing them to do the job at hand, efficiencies will suffer. You need to have a strategy and the tools in place for organizing your team around both individual and collective goals.
#5: Undercommunicate Around Implementation
An effective rollout of new sales commissions plans is all about communication. Teams should have a clear understanding of what changes are being put into effect, when to expect them to go into effect, and every logistical detail in between.
You should also be prepared to walk through commission calculations. Provide the members of your team with a plan calculator or walk each representative through side-by-side comparisons of what they now have the potential to earn. Use historical data and tailor your conversations accordingly so that every member of the team understands their individual impact.
Final Thoughts: 5 Mistakes to Avoid When Developing a New Sales Commission Plan
When you think about it, implementing a new sales commission plan comes down to two main factors: thoughtfulness and communication. On paper, a change may appear to be beneficial for your business, but if you fail to consider the human element responsible for carrying out the work, the bigger picture falls out of focus.
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