Analyzing Sales Compensation Schemes: The Performance Distribution of Sales People
The idea of motivation scheme is a simple one; either positively or negatively, its actions and inactions affect the performances of sales. It is a myth to think it only affects sales positively because it might as well have adverse effects on the sales force.
Although determining the needed percentage to be paid need to the thoroughly thought, the scheme is quite simple to implement afterwards by just paying the agreed rate to each salesperson. However, the adverse effects might be difficult to solve depending on the size and damage. This further shows that motivation scheme is not some simple arithmetic that can be handled by the majority. It needs capable hands and professionals.
In previous sections, we have discussed the various technical plans that form the sales compensation scheme. The needed criteria that make the system needs to be given proper analysis before implementation. Eligibility of salesperson, amount to be paid, the type of incentives to be utilized and salaries to be presented are some features that form the design process.
Why is analysis important?
How many percentages is perfect for the incentive scheme? How best do sales management know the effectiveness of the scheme? Is the chosen payment rate feasible of a long-term scale? How do you quantify results? When is a result tremendous or otherwise?
These lines of questions are the reasons proper analysis is not only necessary but essential for the effectiveness of the scheme. Without it, it will be somewhat hard to measure the effectiveness of the scheme.
It is imperative to analyze the management can deduce the necessary areas for improvement. Also, the specific analysis would show which particular regions of design of the incentives scheme shall be changed.
Quota Management – an essential part of the motivation scheme
Let’s talk about another crucial part of the motivation scheme- Quota Management. As the name implies, it means the allocation of targets to the sales force. This is a necessary first step in drafting a motivation scheme because management needs to outline the salespeople qualified for a particular target and the need requirements.
The success of the motivation scheme design lies heavily on the consideration of quota for salespeople. It is even more critical when the compensation scheme payoff depends on how much a salesperson performs compared to her target.
The problems that may arise
The quota management forms the backbone of the incentive system and if failed, could have a demining effect on the system and the sales force. Wrong targets get salespeople annoyed and demotivated, and in result, below-par performance sets in. So sometimes they decide to ply their trade somewhere else.
This situation is rampant with many companies. Reports have shown that salespeople believe the motivation scheme in many companies is unfair and not a perfect reward for their services. It is common within companies that give targets to salespeople with unequal jurisdictions.
What to do technically – use the graphs
The graph can technically monitor the performance of a motivation shame. Because big companies need more than just some paper analysis and professional brainstorming, the chart presents a perfect option to be in charge. In any case, where there is a problem, the graph quickly points out the source and the affected area.
The below graph shows the number of salespeople and their corresponding realization of their target. In the horizontal axis, you have various performance levels with the 100% realization of a goal sitting in the middle. In the vertical axis, you have the number of salespeople. Each bar shows how many salespeople made a certain level of performance.
What the graphs tell you
Let’s see a brief interpretation of this graph. Basically, the illustration is to give information about sales management. According to the chart, most salespeople made between 90-110 percent of their target. In this case, where the target is above 70 percent, this graph shows that salespeople failed to meet the goal. It is a fair number, isn’t it?
Are these statistics good enough for the company? Does it meet or surpass expectations? This needs to be assessed from both sides- employee and salesperson.
The company hopes to get all the salespeople meet their targets. While it might not be achievable, they must do everything well to help the salespeople meet their quota because they want them around 100 percent level.
The graph shows that not all salespeople are happy and it’s because they failed to meet their targets. Therefore, the 100 percent level is his goal.
Let’s see how both a salesperson and the company would see achievement where most of the people are below the 70 percent level. As already known, it is total dissatisfaction to both parties. What are the effects if most salespeople are in the lower level?
Of course, the company will be worried because of the fear of losing the salespeople and not achieving their budget. In other cases, the salespeople are concerned and demotivated because of less money as income.
Mostly, the terms and conditions of the scheme is a total turn off for the salespeople. A significant reason is that the company give unrealistic targets to them. Another reason this may happen is the addition of a low cap to the scheme or the application of a lower entry performance barrier.
A 120 percent target is literally too high and shouldn’t be so for a company. The reason is that the cost of acquisition for the company out of paying commissions is too high as it spent too much money to salespeople to bring revenues.
The most common reason this happens is that sales targets are set too low and too easy to get. The company has lost an opportunity to get more revenues by paying even less.
In conclusion, the incentive scheme design is not complete without the right target allocation to the salespeople.