Same Old Song and Dance
Early-stage B2B Revenue leaders need to set up commissions correctly. There’s a lot of money at stake, both for the company and sales reps. The more money you come across, the more problems you see, right? Not necessarily. Money isn’t the only thing driving sales rep behavior—the best are self-driven, results-focused achievers—but it does matter. Top sales reps make more than 50% of their earnings from closing deals, in some cases a lot more.
For companies looking to grow, setting up a plan that aligns incentives with growth goals is key. Put another way, a good plan is table stakes. A bad plan confuses, demotivates, and undermines the sales effort. But what makes a good plan? Every member of the Revenue team who has carried a quota or managed sales teams will have an opinion. Add to that the preferences and biases of senior leaders in HR and Finance, all of whom will want to weigh in.
So how is a revenue leader supposed to know what they want from you? Setting up good plans doesn’t mean overcomping reps for their work, setting artificially low quotas, or other worries that crop up during commission conversations. It simply means thinking through a few key areas.
The Sales Comp series covers all of the things that revenue leaders need to consider. The First Verse talks about having a process, setting a focus area, and keeping things simple.
A Change Would Go You Good
Want to guarantee a million sales, pulling all the love? Here’s how to approach commissions:
- Process: Come up with a process for setting comp plans each year. Start early, no later than the end of Q3/start of Q4. Comp plans can take weeks or months to hash out all of the parts and get stakeholders to approve, especially when there are major changes. Starting early will improve your chances of getting plans approved by all parties and out for signature before the start of the next fiscal year. Your reps will know exactly what they’ll earn in advance or at least on time. While this doesn’t mean that they’ll be happy with the plan (we’ll talk about how to improve those odds in a later post), it takes dissatisfaction from receiving late plans off the table. Too many companies start off on a bad note by not releasing comp plans until weeks or months into the new year. Talk about destroying morale!
- Focus: Keep your focus on what you want to achieve next year, then set up the plan to support that initiative. If it’s growth in a new product, make your payout rates higher on those deals. If it’s upsells for current clients, do the same there. Remember that reps can only close so many deals, so prioritize the most important growth initiative for your company. Try to keep it to one. Having a focus area also makes it easier to explain the plan – this is the “why” behind the “what”.
- KISS: speaking of making things easy, keep your plan as simple as possible. Too many sales and finance leaders try to be too clever when crafting plans: accelerators, multipliers, ladders… They throw in every trigger and trap door in the compensation arsenal, thinking that they can cover all positive and negative pitfalls. This often creates more headaches than imagined. Once a plan gets too complicated, no one (reps, leaders, Finance, RevOps, etc.) will be able to follow it. Confusion and disagreements between those functions will inevitably occur. These disputes can last all year, sewing distrust between and within teams. Do everyone a favor and avoid these problems by keeping it simple.
——-
About the author: Todd Rode is a longtime RevOps operator in early-stage B2B ventures. He discovered his parents’ eclectic record collection at a young age and has loved all things music ever since. His consulting company, Year Six, helps revenue leaders navigate the skips and grooves of growing their companies.