Sales commission encourages sales reps to work effectively and increases revenue. Not only does it give your reps the motivation to succeed when your company succeeds, but it also takes them seriously when individual goals and metrics fall short. Mistakes in how to handle your sales commission are typical, despite how crucial it is. Sales commission management must find the correct balance between your company’s goals and your salespeople’s incentives. It’s probable that a few problems will arise over time. As a result, it’s critical that you, as a leader and business owner, are aware of such problems so that they may be discovered and addressed before it’s too late.
In the parts that follow, we’ll go through a number of frequent mistakes that arise in sales commission and necessitate periodic examination of the system.
1. Using a Flat-Rate Commission Structure
Various outcomes need different efforts, and as such, they should be awarded correspondingly. Building a flat-rate commission structure is a huge sales commission error that far too many businesses do. That is, regardless of whether a salesperson achieves or exceeds quota, closes a new product transaction, or gets a new client, their salespeople receive the same percentage on every sale. This discourages employees from pursuing larger customers or agreements because all deals are equally paid.
Sales that are more difficult to obtain need more time and work than normal, thus an employee should be fairly compensated for it. When you design identical incentives for each position, you will notice inferior performance and decreased employee morale. A strategy that generously pays employees who surpass sales goals may even push some core performers to cross over and become high performers.
2. Relying on Spreadsheets
Having your sales commission plan in a spreadsheet platform is a typical error that might possibly do the greatest damage. Every commission cycle entails a flurry of paperwork, spreadsheets, and records in various forms that must be brought together. For a single individual working with Excel documents, this might result in hours and hours of data input. The introduction of data input mistakes, as well as the planting of duplicate copies with contradicting values, might result in incurable chaos.
Mapping your sales compensation plan, and hence your business strategy, on a spreadsheet is wasteful, inaccurate, and risky. Furthermore, manual methods do not allow you to model plans, make adjustments to plans on the go, or readily alter projections. The usage of automated solutions will aid in the development of transparency and trust within your sales team, which, as you are aware, does wonders for your sales.
3. Designing a Complicated Plan and Failing to Periodically Update
Your sales commission plan articulates your company’s strategic vision, and it is meant to support certain organizational goals and priorities.
To be interested in a certain strategy, a person must fully comprehend what they stand to gain from it. Given the importance of a sales compensation plan in a sales rep’s income, they will want to ensure they obtain the finest plan possible. People may be turned off if your compensation structure is confusing and complex. When incentive systems are difficult to grasp, it affects both rep performance and the capacity of compensation managers to operate on the plan.
Yes, there are structural components that all plans should share throughout the organization’s existence. However, you must do more than simply cut and paste. It is not a good idea to recycle a sales compensation plan. Because the purpose of sales incentive planning is to improve on the previous year’s performance and if it didn’t work the first time, why would it work the second time? Reusing the same plan without making adjustments to enhance it prevents you from improving performance.
4. Creating too many Commissionable Events
Sales Commission should be offered to top achievers rather than to average performers. You should set aside salary allocation for high achievers, who are the salespeople who are closing transactions and ultimately moving the firm forward. You want your package to be appealing, competitive, and up to date. If you generate too many commissionable events, you will spend a large portion of your budget on everyday or tedious tasks, causing you to burn through your budget rapidly. Creating commissionable events based on the process rather than the results is another method to overpay for underperformance and will not assure you obtain the results you require. Not only that, but you’ll be overcomplicating the strategy while simultaneously fostering a culture of pay for all tasks.
It is vital to an organization’s success to get sales commission right because your salesmen must be satisfied in order to feel driven and work at a higher level. The greatest approach to ensure this is to fairly and appropriately value their job. The implementation of the plan is just as crucial as the incentive concept. Mutual understanding and coordination are critical for your salespeople and compensation management staff. In the face of fast-moving industries and unanticipated developments, businesses can make frequent sales compensation mistakes that ultimately stifle your sales team’s growth and effectiveness.