How to Change Sales Performance Management Plans

[ read time: 5 minutes ]

By David J. Cocks, CEO

I was talking to a sales executive the other day who was concerned about introducing new commission plans to her sales force. Her firm has several hundred sales people, and she was worried that changing their compensation structure would cause a lot of disruption.

I explained that if you follow best practices for introducing new plans, you minimize the disruption, can retain virtually all of your sales representatives, and get them powerfully motivated to sell even more.

Here is the process we use, which typically results in a 98% retention rate, a 30% increase in sales in the following year, and significantly enhanced profitability.

Needs Analysis

We start by asking your sales force, sales managers, and support staff what they want. They're usually very forthcoming about what they like and what they don't like, what's important and what they don't care about, what they want changed and what they would prefer to keep.

If you're doing this yourself, don't skip this step. Even if you think you already know what they are going to say, take the time to consult with members of each group. You may be surprised by what you hear.

Competitive/Market Analysis

We analyze the competitive factors in your market and determine the potential for growth as well as possible areas of risk.

If you're doing the work, update your information about what commission structures your competitors are offering. If there any new competitors, make sure you include them. Then analyze what's happening with your market. Is it growing or shrinking? Is anything going on that will affect the demand for sales representatives?

Financial analysis

We build a business model of your company and look at where you are now in terms of revenue, expenses, and profitability. We interview top management to find out what your goals are and determine where you want to take the company.

If you're doing this yourself, take a look at your numbers and the trends. What are your goals?

Design plans

Using all the information we've obtained so far, we design new compensation plans that meet your goals, address the desires of your sales force, and are competitive for your market.

If you're designing the plans, it helps to use software that lets you do what-if analysis so you can project the results of your changes. We think our software is the best for this, but you can use Excel too.

Risk Analysis

Once we have the plans designed, we run them through several tests. First, what are the implementation risks? We break your sales force into a number of groups and analyze the impact on each group. Given the market conditions and competition, who are you most at risk of losing?

For example, if top producers have been subsidizing the rest and we equalize the plans, are we at risk of losing mid-level producers? Perhaps not, because no competitor in town has a better offer for mid-level people. But there might be a group of new recruits who are at risk.

Then we determine whether the plans can be administered. There are some accounting systems that can't handle certain types of plans. There's no point in implementing a plan that you can't pay on.

If you're doing this, run some test transactions through your accounting system.

Calculate the results by hand and compare that with what your accounting system comes up with. Do they match?

Tweak Plans

Based on what we found out during the risk analysis phase, we adjust the compensation plans.

Introduce Plans

Once the plans have been finalized, it's time to introduce them to the managers, sales representatives, and support staff. We start with the managers, making sure every manager understands the plans inside and out, because they'll have to explain them.

Then we introduce the plans to the sales representatives, explaining the rationale for the changes and showing where sales force concerns and requests were addressed. We also sit down with each associate and show them what they would have made last year on the new plan. We show them how they will benefit. If a choice is now being offered, we help them make their selection.

This is the most important step. If you're doing it yourself, spend the time it takes to make sure everyone involved really understands what's happening, why you're doing this, and what it means for them.

When you follow this process for developing and introducing new compensation structures, you stay in control. You can project what your results will be ahead of time, and manage the whole process with confidence.

Aligning the Goals of the Sales Force & Management

By David J. Cocks, CEO

When management start talking about increasing profitability, sales representatives start to worry. They know improving profitability usually means cutting commissions and eliminating expenses, possibly for marketing, administrative support or benefits they value. They are concerned the increased profitability will come at their expense.

But that's not the way CM Global Partners and CompensationMaster approach the situation.

One of the main reasons our system is so successful is we don't just come in and transfer money from sales representatives to the company. We wouldn't be able to achieve the 98% retention rate we are currently getting if that was the way we worked.

Instead, our strategy is to optimize the way our clients do business.

Better Meet The Needs Of The Sales Force

First, we re-allocate expenses to better meet the needs of the sales force. We come in and analyze the market, the sales force, and the company's financials. We talk with the sales representatives and find out what they want. Very often this produces some surprises for the management team, which may not have realized the needs of the sales reps have changed. We identify groups of sales representatives that are not having their needs met and look at what the company can do to better meet those needs.

Very often we can identify expenses no longer providing the value they should. In some cases there are benefits the sales force doesn't want anymore. For example, sales representatives might not want health insurance because spouses' employers provide coverage. In other cases, investing in training or additional administrative support might give the firm a competitive advantage in its market. We help our clients re-allocate their expenses to produce the maximum value for the sales force.

Motivate Effectively With The Right Commissions

Then we design compensation plans that are consistent and fair to everyone. We eliminate exceptions and disincentives to greater production. We try to give all the sales representatives the same opportunity to increase the amount of money they make.

We like to offer a variety of plans so each sales representative can choose the risk- reward combination that he or she finds most exciting and motivational. And we make sure the sales representatives are paid as much as possible while ensuring that the company has enough money to pay its bills and make a profit.

Reward Sales Force For Increasing Revenue And Reducing Expenses

One advantage of our system is we tie together human resources, finance and sales management, and align the goals of those three groups.

With a contribution-based approach, sales representatives are responsible for contributing their fair share towards corporate expenses and profit. Once a contribution has been made, they are able to keep most of the rest of the revenue they bring in.

Sales representatives are motivated to increase revenue; as they sell more, they make more. But with this system they also increase their income by reducing expenses. When expenses drop, the amount they have to contribute decreases, so they keep more of the money they bring into the company.

The result is that the sales representatives acquire a perspective similar to the one management has, with twin goals: increasing revenue and keeping expenses under control.