Sales Compensation and Expense Allowances

IDENTIFY BUSINESS GOALS

Before designing a sales compensation plan, first ask what your organization's goals are.

Business goals may include:

1. Sales Quotas. A sales quota is an individualized sales target that each sales person is accountable to deliver.
2. New Business. Sales to new customers may require a great deal of missionary work — building good will and developing relationships that will lead to a sale. This may include product promotions and demonstrations.
3. Retaining Sales. This is keeping customers from one time period to another.
4. Product Mix. The organization may wish to sell a pre-determined mix of products. This will help the company sell its whole product line. It may include new product marketing.
5. Win-back Sales. These are sales to former customers who are regained as clients.
6. Upselling. This involves selling additional products or more expensive products to current customers.
7. Educating clients. Sales may involve teaching clients how to use products and/or providing technical advice.
8. Listening and relaying customer feedback to the organization. The salesperson is often in the position of finding out what customers need and it is important that they bring this information back to the organization so that it can be used to modify products or create new ones to better satisfy customers.

Keep it Simple

In order to properly motivate, you should have a clear, simple goal for each part of the compensation plan. "Keep it simple" may be an overused axiom but it is critical for an effective sales compensation plan. In sales compensation terms, this means keeping the plan simple by minimizing the number of measures. A rule of thumb is no more than five measures with three measures as an ideal. The more measures, the more likely it is to dilute the importance of any one element. In all cases, the measures should be concrete, timely, and objectively measured.

Example: Increase new client sales to at least 25% of your sales made.