What are some of the primary concerns and caveats when creating a sales compensation plan? I think there's two things that you need to be mostly concerned with. The first is that, your compensation has to be competitive to other similar type opportunities out there, and if it's not, you're not going to attract the best candidates to your organization. There's no business out there that wants to pay people anymore than they have to, but I noticed that there's companies that tend to become a little bit too short-sighted on that, and it ultimately hurts their ability to recruit qualified candidates. The second thing that you have to be concerned about in a sales area is that, given the nature of what sales is all about, generally, some portion of a person's compensation needs to be set up in an incentivized basis, such that you earn bonuses or commission or some type of thing as a way of incentivizing you to try to achieve company goals and so forth, right? Now, that become more art than science, what percentage of compensation is considered like a base salary versus what part is incentive, and for every company out there, there's some that have had some great success with one approach and others that have really struggled with that. But generally, in the sales area, some percentage of your compensation needs to be incentivized. In your opinion, what is the most important thing to do when creating a sales compensation plan? I think the most important thing is to step back and look at what your overall company goals are? What are you looking to try to achieve? And you need to organize your company around the achievement of those particular goals, right? So, if a company has really really ambitious sales growth goals, you begin with, do you have the right sales force in place? Do you have the right numbers of sales people? And so forth. But then, the other part of that is, are you able to attract the candidate that you want, who can do the job that you're looking for? So that becomes a question of, what is your overall compensation and what you're offering to people. When establishing a sales compensation plan, the objectives should be things that are salesperson can control and can also be measured. Can you provide a few examples of these types of things? Yeah, I think that what you want to be, I think, concerned about is, for example, you can have a sales force plan, and in many cases, it's typically based on sales, product units sold or something along those lines, and you would think, and for the most part, salespeople are very much responsible for achieving those particular sales goals. But there can be time when you can have factors that are beyond the control of the sales force. What if for example, here in the United States, there's all these terrorists that they've announced, right? It suddenly demand for a product plummets because of that, that's not the salesperson's fault, right? And yet they can be really hurt badly by that. So, what happens then is, when a sales person feels that they can't control their own destiny, right? They give up, right? I mean, they feel like, Well, I'm just going to be taken advantage of, I'm going to be exploited, and then you worry about people leaving and going into other jobs and so forth. Tell me about one of the best sales compensation plans you've ever seen implemented and what made it so great. Wow. Best sales compensation plan, I think is the one that helps a company to achieve its goals, right? So, I have seen sales compensation plans that had been 100 percent commission, I've also seen sales plans that had been 100 percent straight salary. Both of those approaches have at times worked very well for companies in terms of what they're looking to achieve for their goals, right? So, when you say, Which one is the best sales compensation plan, it's really hard to answer that without first saying, Well, what were the company goals that were done? The best sales plan helps you to achieve the goals that you're looking to address. Is there a particular company you've ever seen who you were really impressed by their plan? I think that, not necessarily a particular company, but one of the things that I've noticed of late is how the really smart companies have available to them tons and tons of information, and lots of data to help them in terms of having a better feel for what's going on in the marketplace, and how to align marketplace trends with what your sales force plan is and what you're trying to do. So, companies that are making fact-based decisions based on data from the market and all, I think are companies that first of all tend to make better decisions, but also those decisions I think are better accepted by the sales force, because there's an understanding as to what's driving those decisions as opposed to just personal whim. In the course you give steps to developing a sales compensation plan, but when it comes to goals, salespeople and margins, what's the best way to customize it for your business? I think the one thing, this is going to come across as a little bit of an unusual ID and all, but I've seen it actually work quite well, I think that when you are customizing your goals, what you're trying to do is adjust for individual market differences, individual salespeople differences and so forth. It can be very hard as a sales manager to have your finger on every single button and everything that's going on. What I think is a good idea, is to actually talk to the sales people, and involve them in that process. Now, I know, for some people, that's sounds like you're asking the inmates to guard the jail. I think actually salespeople understand what's going on in their area, and what they can provide to you, I think is really helpful in terms of helping you to be able to customize. How do you go about budgeting properly for a sales compensation plan? Well, I think what you're looking to try to do is find a sweet spot, right? So, when we talk about budgeting and all, what the sweet spot is is that you're looking to pay salespeople a sufficient amount of income in order for them to help you to achieve the goals that you're looking to try to achieve. At the same time, you don't necessarily want to overcompensate them and pay them for things that they were going to do anyways, right? So, there's a real fine line in terms of trying to figure out what is that that right amount of compensation that you're looking to achieve. How do you pretest the process of a sales compensation plan? I think it goes back to the point that I made a little bit earlier. I think that one easy way of pre-testing is to talk to salespeople, trust me, you'll get their attention when you talk about compensation and that kind of thing, right? And listening to them, understanding what goes on is, I think, a very useful source of feedback to you. You can get some situations, and this really depends on you need really really large companies with large large sales forces, but sometimes you can test a change to a compensation plan in a particular region. Now, that's the best, because there you're actually getting real marketplace results, and you can compare that against a control group and all. Unfortunately, a lot of companies just aren't big enough to be able to do that, and I think that what you are then faced with is flying a little bit blind, right? Rolling things out, but being prepared to adapt and change and adjust things as needed. How often should sales compensation plans be adjusted for inflation? I would say, you should probably be looking at your sales compensation plan at least on an annual basis. You said, adjusting for inflation, that's certainly a consideration. There's lots of other factors though that can influence would a compensation ought to be, and it's very important to be able to go back and look at what were all of your assumptions that you made that lead you to the compensation plan that you've got.. Has anything changed with those assumptions that makes you want to go back and rethink what you're trying to do within your compensation system. How do you evaluate the success of a sales compensation plan as such as isn't working accurately and does it fairly reward salespeople, are there any different methods or tactics you can use? I think that there's, I think, two very fundamental metrics that you need to be concerned about, and the first two of course is your company performance, right? As companies are achieving their sales goals, are they moving the business ahead as to whatever has been prescribed by the overall plan? I think the second thing that you need to be concerned about though is your salespersons' morale and in turnover and factors like that. So, generally speaking, if you've got a problem with morale or turnover, it probably is going show up in terms of your sales results too, right? I mean you've probably not going to have as an effective sales force as you want. But those are the two things that sales manager really managed to keep their finger on very tightly. In the course you refer to certain types of compensation, but can you explain other examples and how they work such as profit margin revenue, salary plus commission and commission only. So the fundamental. Approach to compensation, broadly speaking, there's two very broad forms of compensation. There is what we call a straight salary approach which is you are getting paid a certain amount of money irrespective of the work that you produce around that money. Secondly, is some form of incentivized compensation that is based on some achievement of some type of goal or metric that's out there. Incentivized compensation, there's two very broad types. One is commissions, so you're paid certain amount for each sale that you get or whatever. Then, the other would be more of a bonus. So, the idea of a bonus is that you're paid but you're generally not paid like every week. It's more like once a quarter or once a year and, of course, a bonus is usually a much bigger number, and that has a very powerful motivating effect. Where the customization comes into play is on the incentivized part of that compensation, and it has to do with what metrics you're using to calculate a commission or a bonus. So, in some situations, you could be looking at sales, and that might be overall sales dollars or the number of units of products sold. But there can be situations that can occur that maybe a little bit misleading. In some cases, companies don't look at net sales dollars, it might look at things like profits or contribution margin or some other type of thing which takes into account how much you're spending in order to achieve that particular sale. Some companies find that to be a more accurate way of looking at things. Key thing to understand is there's really no ideal approach that can be used and you want to be looking at what helps you as a manager to feel that you are in control of the sales process, and you can deliver on the results that you're looking for. So, what does that mean? Well, for example, if you're a sales manager and you're pretty much held solely accountable on sales, that's the only thing that matters to you. Then, as a sales manager, that should be the only thing you get concerned about too. But if you, as a sales manager, are held accountable to not just sales but also, let's say, your expenses that you will incur, or the sales minus expenses is profits, then you need to be looking at that within your individual sales people. How can you deliver on the expense controls part of your job if you're not actively implementing that within your sales force? So, it goes back to understanding what is senior management's expectations for you and making sure that those appear within the measurement metrics that you're using. Can you explain the impact of unsuccessful sales compensation plans and how to adjust or start over if something bad happens, like a failed product launch, or a lack of growth, or miss goals? So, there's two kinds of problems that can occur with sales compensation plans, problems that can occur in that. The one is that you are in effect overpaying your salespeople, so that means you're compensating them for work that probably would have achieved any ways, or would have occurred. So, with the impact that that has is that it really affects your profits and your ability to generate maximum profits and all. The other type of problem you can have is when you are under compensating your sales force, and what happens there is attrition. You lose sales people. The really good sales people move on. They moved to a place where they feel that they can be more fairly compensated with. With the impact that that has, is really directly related to sales. If you don't have the people in the market trying to sell, how do you expect to be able to achieve your sales goal? So, that can have a real significant impact on what you're trying to do. So, if I was a sales manager, the thing that I'm looking to constantly keep an eye on is, am I achieving my goals? Are those goals realistic goals? Are they appropriately stretch type goals? Secondly, are the sales people happy? Is morale good? They get those two things right, you're going to find that your job of being a sales manager goes a lot easier. What are steps to keep your earning metrics on task? I think the thing that you want to be doing is probably looking at, first and foremost, is you are within your own industry, and how do your compensation practices compare to your competition. Are you competitive relative to your competition and all? Then more broadly speaking, how are they relative to just other types of jobs that are out there and opportunities for that. So, what does that mean? I would say this, as a sales manager, if you find yourself continually having to hire people, if you're experiencing a lot of turnover, something's wrong. You shouldn't be doing that all the time. I would suggest that probably your compensation plan, needs some fine tuning, and you get that fixed, and you get the salespeople in place and actually you can begin to see some real differences in the ability to deliver on sales. As a sales operations manager, how do you negotiate a sales compensation plan with a salesperson? I think when you are having your discussion with salespeople and all, I think the theme of that conversation has to be win-win. When sales compensation plans are well-crafted, the company achieves its goals and the individual sales people are achieving their particular goals too. So, what does that mean? To the extent that people are appropriately incentivized, they're going to work harder. They're going to deliver more sales. That's what you want. At the same time, those people are going to be rewarded by better compensation. That's what they want too. So, you need to be aligning so that your plan is hitting on both of those dimensions.
