Most sales compensation plans reward for sales volume, most often revenue, margin, or units. As businesses grow, mature, and become more complex, the quality of the revenue increases in importance. This often comes up when the sales team has hit their assigned sales numbers, but the company is disappointed with the nature of those sales. We list below some of the most common business needs that create a need for measures of sales quality, and the kinds of compensation mechanics that may be used to reward those who deliver those "better" sales:
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Business need: Profitable business
Measures of Sales Quality | Comp Plan Features |
| Gross Margin value (e.g., dollars) | Primary measure may be margin value |
| Gross Margin percent | With sales value as the primary measure, margin percent may drive a modifier to increase/ decrease earnings as margins go over/ under target values |
| Overall deal profit (actual or projected) | Primary measure may be deal profit |
| Discounts (to be minimized) | Total payout on a deal may be reduced if discounts are outside target range |
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Business need: Growth in sales of new/strategic products/services, or targeted customer types (e.g., new customers or customers in specific industries)
Measures of Sales Quality | Comp Plan Features |
| Sales (revenue/bookings) of emphasized offerings or to emphasized customer types | Product or customer types chosen for emphasis (usually new or strategically important) may be differentially rewarded in one of the following ways:
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Business need: Sales over goal/quota
Measures of Sales Quality | Comp Plan Features |
| Sales/margin value over goal/quota | Quota attainment bonus paid when the goal is reached (usually binary, either you earn it or you don’t) Sales over goal are paid at a high commission rate so that the reward for getting to and beyond the goal is the opportunity to continue to earn at an accelerated rate Note that we prefer the 2nd of these because it puts the excitement into going beyond the goal, not just getting to the goal |
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Business need: Consistent sales performance
Measures of Sales Quality | Comp Plan Features |
| Quarterly consistency measured as number of quarters at or over the quarterly goal | A bonus for each quarter in which the quarter goal is attained, and my include
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| Year-to-year consistency measured as the number of consecutive years at or over the annual goal | A few good ideas for the this (pick one, or more):
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Finally, with all these measurement possibilities and linkages on display, we feel compelled to caution you that, when it comes to sales compensation plan design,
Simpler Is Better. Be careful. No Gratuitous Complexity.
Only include these types of components in support of strategic imperatives for the business. And remember that you only really get to "say" about three things with your compensation plan and be "heard." Just because you can, that doesn’t mean you should.
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.