Commission scheme tuning
Sales people are ingenious in maximizing their bonus. They will always find a way how to make the most out of the commission scheme.
This is great news when the scheme is completely aligned with the business goals. But when that’s not the case it can lead to a situation when your sales people are rich and happy and your company is poor and struggling.
The opposite situation when company wins and sales people lose is similarly dangerous. However this scenario is fairly rare and usually doesn’t last long as when sales people are losing they leave. And the best ones go first.
And it’s not just when a bonus is not high enough. One of the greatest drivers motivating people towards action is injustice. Is your bonus scheme fair?
How do you know your bonus scheme is misaligned or unfair?
The first signal an incentive scheme is misaligned is the one we’ve already touched on — when there is a disconnect between the company financial success and the financial success of the sales reps. Another great check is to see if your best sales people (honest and hard working) are getting the highest bonus.
However those are just high level indicators. In order to get a clearer picture you want to look a bit closer.
Behaviours
The real key is to know what the behaviours of your sales reps are. What do they actually do?
If you’ve got a good relationship with an insider within your sales team, the easiest way is to ask them — what tricks do people use to maximise their bonus?
It might be a bit awkward for a sales person to reveal this as they are part of that team, so a better person to ask might be a team leader, ideally a recently promoted one as they might have the tricks still fresh in their own memory.
If you don’t have an easy way to find out by asking, you could dive into data and analyse what’s happening but that’s quite time consuming and in my opinion not necessary (I bet you didn’t expect to hear this from a data analyst’s mouth).
My suggestion would be to block out some quiet time and think. If you were a sales hacker, how could you take advantage of the current bonus scheme? How could you maximise your bonus? Think about playing around with win dates, discounts, requotes, refunds, cherry picking leads. Don’t be shy — it’s a game ;-)
Now try to go even further. What if you put your whole moral code aside for a minute? I believe immoral fraudsters are very rare in business but money has got the power to taint hearts and minds. One doesn’t get caught once, twice and they start to believe they will never get caught and convince themselves their behaviour is normal.
These people however are like a cancer in your organisation. I have worked with a company where there was one such cheat — the behaviour was fairly well hidden but ultimately this person was artificially improving their performance and as a result making their colleagues perform worse and reduce commission. They were basically stealing from the others.
I admire the resolute action managing director took when he found out. Despite the fact the sales rep was the very top performer, the managing director has fired them on the spot.
Integrity is more important than money.
How do you create a great incentive scheme?
Setting a great incentive scheme is not a one of exercise. It’s like a play between Tom and Jerry. At the moment the cat might thing it’s got the mouse only for the mouse to find a nearby hole to escape.
I believe there is not a single commission scheme that would be ideal for every company or even throughout different stages of the same company. My main recommendation is to start somewhere and expect to further tweak (or even change completely) the scheme as you discover it isn’t serving you or your reps.
So rather than giving you a specific formula, here are some elements you might want to consider when setting up your commission scheme:
- Revenue (the most common element)
- Profit (but it’s not necessarily just about revenue, profit is quite important)
- Cost of leads
- Conversion rate
- Refunds
- Customer satisfaction
- Repeat sales (avoiding overpromising)
- Admin task (e.g. updating CRM accurately and in a timely fashion)
- Forecast accuracy
- Lead generation
- Different type of leads (inbound/outbound/referrals)
- Experience of a sales person (if you are paying a higher base salary to a sales person, should their target be higher?)
- Target setting (how to make it motivating and achievable?)
- Exceeding target (how to keep people
- Consistency (how to prevent sales people from postponing/stacking their deals to a single period?)
- Simplicity (keep it simple, the above are just ideas for inspiration, don’t use all of them)
Tweaking your sales incentive scheme is a great sales lab experiment. Remember to measure its impact — both qualitatively (talking to your sales people) and quantitatively looking at your revenue, profit and maybe even retention of your best sales people.
