There seems to be this unwritten rule that sales comp plans must be changed annually. A fair amount of our clients amend their comp plans annually; some do touch-ups, while others do complete overhauls. More recently, we have seen a downward trend in making annual changes.
Our recommendation is to avoid making changes if you can. Updating commissions or bonuses for new products or services is necessary. However, changing current commission payouts or bonuses is always risky.
Once the new plan has been announced, your sales professionals will immediately assume they will earn less money. They will return to their desks and start analyzing how they will be paid for the deals they have done in the past, the deals they are currently working on, and how the comp changes will impact their income. This process can go on for weeks and become an unproductive distraction.
So, when do we recommend you make changes?
- New Products or Services – This is the time to make changes to compensate for the sale of these new products and services. A big mistake often made is that new products and services are added, and compensation is not addressed, leading to poor sales performance and a lack of adoption from sales professionals.
- New Position or New Assignment – Sales compensation is usually not a one size fits all solution. If there is a new type of sales professional added, or there is a new assignment or change that may alter what the rep sells or even whom they sell to, then a new comp plan should be created, or adjustments should be made to old methods to make the unique circumstance benefit the sales professional while still making sense for the business.
- Mistakes – Sales compensation plans are usually built using assumption modeling, which does not always work out. When that happens, be honest with the sales reps and let them know that how they are being paid is unsustainable for the business and that changes need to be made. Be transparent, let them know what you are doing, and why, and save them time making assumptions.
- Sales Professionals Make More Money – If you can change a sales compensation plan and prove that your sales professional can make more money…then go for it! We are not suggesting that you now pay 40% GP instead of 35% GP. We are saying it should be designed so that they can make more money if they participate in all areas of the compensation plans, sell all products, and achieve all sales targets.
So, the moral of the story is that if you are going to update your sales compensation plans, be incredibly careful and ensure that you can always prove they can make more money going forward. No sales professional will be excited or motivated to make less money next year.