I’ve been in sales for more than 15 years now. I’m well practiced at the sales process. I know I’ll get my quota every year, and my company will let me know what targets they want me to meet. Most years, I’m given my “Commission Plan” at the start of the year. This tells me the amount of commission I can earn, along with any other incentives I could be eligible for, and all the terms and conditions of the sales scheme.
That is, aside from that one year when I received my plan in April. Anyone who’s in sales can well imagine how stressful it was working for the first four months of the year not really knowing where management wanted me to focus. Was I supposed to bring in new clients? Build relationships with existing clients? Put most of my effort into the most profitable client accounts?
Being late sending out commission plans is a surprisingly common administrative pitfall – and it’s unfortunately one of many! Managers don’t always spot administrative pitfalls, or understand how dangerous they are. After all, it’s just paperwork … right?
Let’s take a look at the dangers of administrative problems in your sales incentives scheme, and what you can do to prevent them.
What Is Administration?
Administration falls into four main areas:
1. Calculation of incentives and analysis
At the end of every incentives period, it’s time to look at every team member’s performance and results, and calculate how much incentive that person will be paid. It’s vital that the calculations are accurate and done in a timely manner so as to avoid payment delays.
Sales teams have access to a lot of data, and this data provides valuable insights to management. Data regarding performance details and incentive payments can be used to create reports that help sales managers assess how their business is doing, and how well the sales incentives scheme is working.
Every sales incentives scheme needs an exception policy. Managers never know when a case might arise that requires going outside the usual sales incentives scheme. For example, if a sales person lands a lucrative deal that nonetheless falls outside the incentives scheme. An exception policy lets managers know how and when an exception might be approved.
4. Communication and interaction
Communicating the details of the compensation program to the sales force is an important part of administration. Depending on the scheme and the sales force, there might need to be follow-ups that include further training, a Q&A session, or a meeting to explain the scheme or any changes made to it. Part of administration is being proactive and anticipating the sales team’s needs following each communication.
The Effects Of A Poorly Administered Sales Scheme
Good administration keeps a sales scheme running smoothly, which in turn makes it easier for sales people do to their jobs. Poor administration leads to complexity, confusion, inconsistency and irregularity in the scheme and in the way it’s communicated to the sales force.
When administration is messy and confused, sales people become frustrated and demotivated, and don’t give their best to their company. This has a direct impact on performance and profits.
I once interviewed a manager whose sales force were dangerously demotivated. The research we did showed that the real problem was an administrative one – whenever there was a even a small mistake or dispute in commission payment, there was a 3 month review cycle to be gone through before the problem could be sorted. Of course the sales staff were demotivated – the smallest mistake, which wasn’t their fault, meant a 3 month wait for the money they needed to pay their bills and feed their families!
Sometimes a poorly administered scheme doesn’t directly affect the sales people, but it does make the company’s costs sky rocket. I have certainly worked with companies where poor administration led to wrongly calculated incentives, which in turn cost them a great deal of money. In this case, they had to hire more people to deal with the extra work that poor administration had causes, which put up their costs quite considerably.
I’ve met far too many sales executives who believe that once a sales plan is designed, that’s the end of the administrative part. Nothing could be further from the truth – administration is an ongoing activity that has a direct correlation with sales team satisfaction, motivation and performance.
The Challenges Of Administering A Sales Incentives Scheme
Anyone who’s ever administered a sales incentives scheme knows it’s no easy task. Effective administration takes time and effort, and there are many potential pitfalls:
- A growing organization. Growth is a good thing, but it can make administration difficult – suddenly there are hundreds of people for whom the sales scheme must be administered and payment calculations made.
- Lack of a solid foundation. If the scheme isn’t built on a strong base, it will really struggle as the business grows and sales becomes more complicated.
- No clarity within the system. For example, if part of the system offers an incentive for something that cannot possible be calculated, or the exception rules are foggy.
- Lack of knowledge in management. If sales managers don’t truly understand or adhere to the incentives scheme, it’s hard to administer it effectively.
- Confusion about roles and responsibilities. Effective administration needs organized, hands-on managers. If people don’t know their roles or aren’t clear on their responsibilities, effective administration becomes very difficult.
What Does A Well Administered Scheme Look Like?
So how can you tell if an incentives program is being properly administered? There are several key characteristics that let you know whether a scheme is being administered properly.
A well-run scheme means timely payments to all sales people with very few mistakes or disputes, and quick responses to exemptions or any unusual situations that come up. There is enough flexibility to make decisions quickly and keep the process smooth. Sales people are paid on time, and people are not getting frustrated, demotivated, or even leaving the company.
A well-run scheme does more than just motivate and make payments to the sales force. If the scheme is being administered properly, it will serve as a powerful management tool that offers deep insights about both the sales team and the company itself. The scheme provides a strong analysis framework and plenty of useful data about predicted sales and future revenues. Managers have access to information about results, payments and performances that they can use to analyze the company, decide strategies, and better manage their sales force.
The real heart of it, however, is that a well-administered scheme promotes equality and fairness among sales people. It makes the competition fair and ensures sales staff have equal opportunities to be rewarded for their hard work. This in turn breeds a strong team, and company loyalty.
Good Sales Scheme Administration Is Simple
By now you have a clear idea of how vital sales plan administration is, and the effects of a poorly run sales incentives scheme. The question is, how does one effectively administrate a sales scheme?
The answer is surprisingly simple, though the implementation of it takes time and dedication. Efficient sales scheme management can be broken down into three main steps:
1. Get the right people on board. Set up the right teams. Include a strong analytical team to collect data and translate it into insights, and skilled administrators who can keep things running smoothly and solve problems before they get out of control. Get organized and make sure there are people in place to support and run the administration side of things.
2. Get the right technology. The right system helps you avoid errors, therefore reducing operational risk. You want a robust system that calculates commissions accurately and is user friendly enough to avoid snags and mistakes. Also make sure your client management system produces the kind of analytics management needs to study performances and make future predictions.
3. Get the right process in place. Produce a work flow that makes clear exactly what needs to happen, when it needs to happen, and who is responsible. Every member of the incentives team, and all supporting staff, needs to know their responsibilities and what is expected of them.
So many companies make the mistake of overlooking the administrative side of sales incentives. They put a lot of effort into designing the sales scheme and deciding on what to pay their sales people, but don’t think about what comes afterwards. However, as we have seen, the administration is a vital part of the scheme and can make the difference between whether the incentives scheme works, and keeps sales staff motivated, or not. Administration of a sales scheme isn’t overly complex, but it does need thought, preparation, and time taken to put together the right team.
Once your administrative processes are in place, remember to document them properly so that everyone involved knows what they are expected to do, and when. Your aim should always be a scheme that runs smoothly with few, if any, mistakes, and pays people correctly and in a timely fashion.