The way this question came to us was in the context of a business with new equipment sold at lower margins and higher volume, and used equipment sold at higher margins and lower volume. But the principles apply more broadly.
Presumably the high revenue new equipment sales are generating a reasonable margin, though perhaps at a lower percent. If the relative value of these two offerings is accurately reflected in the margin value generated (dollars/euros…), then Margin Value may be the single measure that combines them both and balances effort and rewards appropriately.
However, there are many reasons businesses give for not using Margin Value as a sales compensation measure, including a reluctance to share margin information broadly and an inability to accurately measure margin at a sales person or order/contract level. In this case it may make sense to split the plan into two separate components with target incentive value assigned for New Equipment and Used Equipment separately, along with goals or quotas for each category. In addition it may be important to link the two measures so that a sales person cannot “win” by doing well on one and not the other. For example, there could be a requirement that in order to earn accelerated over-goal compensation rates on one of the measures, at least 90% of the annual goal has to be achieved on the other measure.
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Donya Rose, CSCP, is Managing Principal of The Cygnal Group. She is a recognized expert in sales compensation plan design, regularly speaking at conferences and writing published articles. She serves clients from F500 to growth-stage businesses, and advises WorldatWork on sales compensation hot topics and best practices.