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MEASURES OF SUCCESS
Sales Compensation Metrics
Sales compensation metrics can vary depending on the industry, maturity of the organization, and sales focus. Here are some of the metrics that might be used to determine incentive payout:
- Annual revenue
- Order value
- Renewals
- First-time sales
- Up-front cash
- New Accounts
- References
- Big deals
- Regularity of orders
- Profitability/gross margin
- Customer satisfaction
- Forecast accuracy
- Expense control
- Management by objectives
If you choose to use a straight commission or combination plan, you will need to select the measures by which to judge sales success.
Remember: Keep it simple.
Use 3-5 measures - 3 is ideal - any more will only confuse your sales staff. Three allows your sales staff to focus on the most important measures.
Make sure the measures you choose are:
- under control of the salesperson
- easy to track
- directly related to the bottom line
Most sales compensation programs need to reward more than just sales volume.
You might also consider quantifying the sales opportunity in customer segments. Any increase or change in mix of revenue must come from a finite market. Organizations can use several methods for sizing that market and its segments by using customer surveys or even statistical regression. Once an organization knows how much revenue and profit opportunity is in the market and how much is accessible to its sales force, then it can determine how much of the sales compensation plan can be delivered from each business segment. Leading sales organizations will quantify the sales potential available and create a model needed to achieve business objectives.
Sales compensation plans are effective motivational tools only when two conditions are met:
- Salespeople must clearly understand the results or task they are compensated for and how much that compensation is.
- Where results or task completion is not instantly obvious to the salesperson, full feedback must be fast enough to allow the salesperson to recognize which sales methods are effective and which aren't in time to correct techniques that would reduce their compensation.
If you want to encourage goals that are NOT incorporated in the compensation plan, then try using management by objectives (MBO). The term "management by objectives" was first popularized by Peter Drucker in his book The Practice of Management.
Here's how MBO works:
Management by objectives (MBO) focuses on results, not behavior. Also known as appraisal by objectives, MBO involves comparing the employee against a standard of expected results.
MBO requires 3 things:
- a set of clearly defined goals
- participation of both manager and employee in setting the goals
- feedback to the employee as to how well he or she is progressing toward the goals
The employee is rewarded for achieving goals with praise, or by pay incentives or bonuses.
For more information about MBO, see DLC Course 77: Pay-for-Performance.
Memory Jogger
In Management by Objectives what sort of incentive is used to reward employees?