Our team was thrilled to join our fellow sales operations and compensation (comp) professionals in Chicago for the 2021 Spotlight on Sales Compensation Conference hosted by WorldatWork.
Over three days, we heard from incredible keynote speakers and panelists discussing sales analytics, sales compensation, and sales operations. We appreciate the WorldatWork team’s hard work to ensure this in-person event was safe for all attendees.
Missed the event? No worries, we have you covered! Keep reading to learn the overarching lessons about sales compensation we took in during the event.
Lesson #1: Your Comp Plan Must Evolve to Keep Pace with Agile Approaches to Selling
The only constant in this new world of selling is change. Sales organizations have experienced many transformations due to new technologies, evolving buying habits, and shifting business strategies.
The Importance of Aligning Strategy, Clarifying Roles, and Understanding Sales Motions
One area that’s often considered risky to change is sales compensation. David Cichelli, Revenue Growth Advisor at Alexander Group, led the discussion on sales compensation. As David outlined in his session, “Sales Compensation Changes, Antiques RoadShow or a Red-Hot Skillet,” many companies can end up in one of two extremes:
- Antiques Roadshow: Compensation plans that seldom change due to no need to change, an inability to change, an ossified industry, tradition, fear, or being held back by an original author.
- Red-Hot Skillet: Compensation plans are constantly in flux due to demanding expectations, too many cooks providing input, a stray comment from the executive team, non-stop tinkering by sales leadership, or the assumption that sales teams only perform if they receive an incentive.
According to Alexander Group’s data, 100% of companies plan to change their 2021 sales compensation program, with 13.2% planning on making major changes affecting most plans. Whether your comp plan changes are minor or significant, David recommends:
1. Aligning the sales compensation strategy across business objectives, revenue strategy, sales management, sales talent, and sales compensation.
2. Clarifying sales jobs by the sales reps’ type of selling: conversion selling, new market selling, fulfillment selling, penetration selling.
3. Understanding the sales motions involved, whether it’s sales innovation, sales advocacy, or sales fulfillment. These motions have implications around measurement and mechanics required to compensate the reps adequately. For example, reps must cover purchase justification, offer assurance, and decision guidance with sales advocacy. These motions can be measured by sales production, competitive wins, product mix, and customer satisfaction. Therefore, the mechanics that can measure success include aggressive pay mix, quota plans, and satisfaction incentives.
4. Establishing clear roles for determining sales compensation plans, including an administrator, program manager, and strategic advisor. The strategic advisor will have the most significant impact overall. From there, you can break out the project into phases with dedicated teams like the steering committee, project team, an internal project manager, and interviewees.
5. As the team develops the new compensation plan, it is essential to manage the entire process from the initial assessment to the actual administering of the new program. Testing and communicating comp plan changes are critical to implementing a successful plan.
How Sales Teams Can Adapt to the New World of Selling
In his presentation “Sales Comp in the New World of Selling,” Managing Principal at ZS Chad Albrecht highlighted the most apparent impact of COVID-19 on sales organizations — the rapid replacement of face-to-face interactions with remote interactions. With most B2B buyer interactions going completely remote or virtual across different stages by October of last year. You can see in the chart below that 71% of B2B decision-makers preferred to evaluate new suppliers virtually. Safety, the ease of scheduling, and savings on travel expenses are a few reasons these interactions have shifted.
With no signs of this “new sales model” slowing down, specific trends have risen to the forefront and are changing how sales reps add value. Based on 25 in-depth profiling interviews with salespeople, Chad identified three sales trends shaping the value-driven environment in which sales incentives and quotas operate:
- Holistic accountability: We’re seeing more Solution Specialists (versus Product Specialists) who establish and maintain contact with buyers to determine what software best suits their needs.
- Sales mindset: Sales teams need to adapt, and so do the individuals that make them up. There’s a conscious shift in attitudes to overcome new challenges.
- Engagement modes: Multichannel client engagement is on the rise despite most B2B channels being only at 75% of aggregate historical levels of customer engagement.
The bottom line is sales organizations need incentives to prioritize holistic customer impact and support sales role changes. It’s a lot to consider as the role of sales evolves to be more customer-centric, value-driven, team-based, and long-term. The way companies motivate their team must keep pace with this shift. Companies can take a closer look at the underlying drivers of energy for individuals using the I CARE framework.
Based on your findings, you can create “energy boosts” that line up with the opportunities with your team. For example, investing in field-facing tools and tech, redesigning the onboarding process, optimizing the variety and frequency of rewards, and creating an inventory of “best failure” case studies. It’s all about finding the right mix to maximize the productivity of your sales team as they work in this new world of selling.
Lesson #2: Measuring and Decreasing the Sales Comp Efficiency Ratio Can Help You Optimize Revenue
Robert Blohm, Senior Partner at OpenSymmetry, and Donya Rose, Managing Principal at The Cygnal Group, teamed up to show how businesses should think about the cost of their sales team in the presentation, “How Much Should the Sales Team Cost?”
Understanding how much your sales team costs is an essential measurement for strategic planning, yet 80% of organizations lack defined methods and measures to determine the costs and productivity of their sales function. The relationship between sales productivity and costs becomes a ratio known as the sales efficiency ratio, as explained in the session:
Sales costs and productivity vary by industry. However, you can still give meaning to the ratio via comparison — within the company (sales teams, regions, channels) and across companies within the industry.
Capturing sales team ROI is easier said than done. The absence of standards and the variability of components measured can make driving down “the ratio” challenging to navigate and predict — especially since 40% of organizations don’t have any processes dedicated to assessing their sales expense. Here’s where SPM solutions play a role. From comp plan administration to territory alignment, SPM software is being leveraged to evaluate sales plans, but there’s a bit of adoption work that needs to be done.
Once you’ve selected and configured your system for expense reporting, you can begin leveraging tactics to improve the Sales Efficiency Ratio, such as:
- Encouraging salespeople to focus on the sales that will deliver the most value to the business
- Giving more selling responsibility to junior sales roles
- Assigning channel partners to focus on specific segments
- Streamlining the number of leaders for each sales team
In measuring the cost of the sales team to assess the return on sales expense, most companies rely on base salary (84%) and variable pay (71%) regardless of industry. So, for comparison’s sake, here’s a proposal for how you can assess your sales efficiency ratio:
Lesson #3: Use a Forward-Looking Statement to Motivate Your Sales Operations
It may be tempting to want to max out all of your sales performance metrics, but when it comes to compensation, you actually want to be focusing on moving things to the middle.
The way you design your incentive plan can bring you to that coveted middle where your sales team is motivated and improving performance. Thus, the goal is to develop a comp plan that helps middle performers collectively achieve a higher average.
So, what happens when you have solid reps, but they’re performing inconsistently? Many existing sales plans aren’t as effective as they can be:
- 20% of reps don’t understand how they are paid
- 17% feel their comp strategy doesn’t support the overarching company goals
- 18% have questions related to their commission every month
Finding the right balance that motivates your team takes some planning and testing using the expectancy theory as the basis for your motivation formula. Expectancy theory is the idea that an individual will behave or act in a certain way because they are motivated to select a specific behavior over others due to what they expect the result of that expected behavior to be. In the context of sales compensation, it can look like this:
So, when your sales team has a clear understanding of the expectations, recognizes the reward they will receive from achieving the expected results, and values the reward offered, they will be motivated to repeat the behaviors that earn them those rewards.
The question then becomes, how is the expectancy theory translated into the hard numbers that make up a sales compensation plan? Currently, many companies rely on excel calculators, manual calculations, and siloed data. As a result, sales reps are left without a complete picture of their path to success. That’s why the way forward is the forward-looking rep statement.
- Commission Administrators can predict rep performance to help guide selling activities
- Reps can see for themselves whether they have enough pipeline to achieve quota
- Incentive Compensation Managers benefit from this model because it proactively involves reps in the regular data audit process
That’s a Wrap
So many great lessons came out of the Spotlight on Sales Compensation conference hosted by WorldatWork. Our biggest takeaway is that the world of sales compensation will keep evolving. Sales organizations will continue to adapt their tools, technology, and programs to fuel growth and build with change in mind.