Question and answer format
Do companies achieve secondary goals like introducing new products or improving the product mix or the average unit price through comp plans? Is it advisable to pursue more than the number one goal of rewarding sales?
Most sales compensation plans include more than one objective. In a selling environment with any complexity at all, one objective rarely covers all of “the most important things.” Some sales are more valuable than others. These more valuable sales may be literally more profitable (better margin products), or strategically important (solidifies a longer-term relationship with the company), etc.
While I am a passionate advocate for simplicity in sales plan design, most of the plans I have helped to create include more than one component. Examples are:
- Revenue on legacy products, revenue on new products
- Existing customer sales, new customer sales
- First year contract value, out-year contract value
- Sales value (e.g., dollars), margin value (e.g., dollars)
- Individual sales, total team sales
- Bookings, recognized revenue.
Two measures in a comp plan doesn’t worry me – it probably means the comp plan accurately reflects the sales priorities. Three measures may be warranted as well. Four measures can sometimes be justified, but usually is not a good idea. Five measures is more than I can recommend.
You can “say” all you want to in a comp plan, but only about three things can be “heard.” So three measures is a good maximum, and fewer is better as long as you don’t over-simplify the business priorities.
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.