Sales Compensation and Expense Allowances

COMMUNICATE THE PLAN

Once the plan has been approved, it should be communicated to your sales management and employees.

You might begin by writing a letter to the sales team explaining why and how the compensation plan is changing. Include diagrams showing each employee how their compensation will work. Remember, the formula should be simple enough that the employees will understand very quickly how their pay is calculated.

MEASURE THE PLAN

You should evaluate the plan's effectiveness regularly. You'll want to be sure that in practice the plan really achieves the goals you've set out. Here, many companies fall short. According to guidance provided by Gartner, "...enterprises will miss the equivalent of 5% TO 10% of annual sales as 'lost opportunities' that could have been captured through improved management of sales territories, quotas and compensation plans."

Software

Sales program administrative software can be a useful resource when administering and/or auditing a sales plan.

This software lets you measure various performance indicators, including:

• sales and profits per territory
• gross profits per line of billing
• profitability per customer and per product
• sales costs as a percentage of gross profit per territory

Software lets you easily audit commission calculations and will automatically conduct analyses for you.

Gartner evaluates Sales Performance Management software and publishes their Magic Quadrant of top-rated software and is an excellent reference source when considering new software.

Change is Good

The Sales Compensation Plan should be reviewed every year. This is because the following are bound to shift:

• the product market
• business goals
• sales employees' career goals

Don't forget to establish a career path for salespeople, so that they may have the opportunity to grow and develop on the job. This will help your company retain its best employees. Increased total cash compensation opportunity, whether through increased base salary, commission, sales quotas, or larger territories, can help to accomplish this goal.

What to Do in a Soft Economy

It is important not to react to short-term dips in the economy. However, when the economy takes a substantial downturn, you should consider reevaluating your sales compensation plan. At times, when product markets level off or drop, competition often grows and customers become more conservative.

In this situation, your organization may want to pay what it owes and then redesign the compensation plan to:

1. reduce quotas so they are reachable
2. reduce commissions for repeat sales, but raise them for new business