Sales Compensation in Medical Devices
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We have seen this question emerging more frequently as we manoeuvre through the post-COVID era. Finance wants to know, “Am I paying as much as my industry counterparts?” But the bigger question for many coming out of the global pandemic is the impact on medical device companies, and what does it transpire into for finance when it comes to designing the best sales compensation plan?
There are approximately 6500 medical device manufacturers in the USA, while the number stands around 3000 in India. Both countries are set to grow at around 5% CAGR over the next 5 years while Europe accounting for the largest, i.e., 27% of the global market, is set to grow at ~4.5%. The situation also seems to be healthy from a salesperson’s standpoint. The average salary has increased by 14% for women holding 23% of managerial or director-level positions, and the number is set to go further. However, 90% of people value meaningful work over pay, as cultivating long-standing relationships with healthcare professionals is necessary to provide the best patient care.
This demands the need for an optimal sales compensation plan which is done by the finance or sales operations team. It’s as good as walking a tightrope for them. A suboptimal sales compensation plan may demotivate the sales force and impact the bigger goal of providing the best patient care. Additionally, given the nature of engagement with healthcare providers, sales compensation plans must also be fair to the company. Most of these are high ticket engagements, meaning a steady but slow cash flow for the medical device manufacturer. We should also keep in mind that the sales compensation plans in the medical devices industry will need to be nimble enough to account for any possible changes because of uncertainty post the COVID era.
A good sales compensation plan in the medical devices industry creates a good balance, giving enough opportunities for the salesforce to make decent incentives without squeezing every drop out of the manufacturer while they collect the dues from the healthcare providers in phases. Additionally, a good sales compensation plan makes sales reps nervous as the plans are usually steep/complex yet achievable. The structure of your sales compensation plan and the support you provide the sales reps bring out the best or the worst in their behavior, directly impacting your company’s overall performance. As a result, it is important to keep communicating regularly with the sales reps, so they do not lose confidence in achieving the sales goals. A strong team helps you create an excellent sales compensation plan, whereas when it comes to supporting your sales reps to achieve their goals, you need a solution that captures the spirit of that compensation plan. A good solution delivers the required transparency to the sales reps in terms of how their efforts will translate into decent incentives and, in addition, also act like a guide in assisting them with their sales planning and execution activities.
Incentivate, today is the preferred choice for the world’s leading medical device manufacturers, and it effortlessly helps achieve the above-mentioned goals. Incentivate’s native no-code builder, pre-configured models for medical device companies, and in-built connectors help finance and sales operations teams eliminate redundant manual work. Additionally, personalized insights for sales reps ensure they are always aware of their potential incentives and how their efforts contribute to the organization’s goal.
Common Data Sources Integrated
Interoperability is a crucial part of medical device companies. Their underlying principle here is the ease of access to information to reduce overheads and expedite patient care. Incentivate applies the same principles for expediting the compensation process and ensuring convenience for all the involved parties, especially; finance, sales ops, and sales reps. Incentivate has inbuilt connectors with Sales, Opportunity, and Invoicing systems like SAP Oracle, Microsoft suite, Lotus Notes, Workday, and Salesforce. On the Finance side, Incentivate is already integrated with systems like Quickbooks, Zoho, and Sage. From a payee information standpoint, we have connected with HRMSs like Oracle, Workday, Darwinbox, GreytHR, and KekaHR, simplifying the most convoluted aspects of sales compensation like hierarchy, credit splits, disputes, eligibility that are today managed offline in spreadsheets. Additionally, custom integrations have been established with in-house applications wherever needed. Incentivate manages these easily by establishing a pull-push relationship with such systems. It may work on-demand or according to predefined schedules. You can experience seamless connections with these platforms and simplify your life.
Typical Components in Medical Devices Sales Compensation Plan
In the medical device industry, several metrics are commonly used to pay performance-based compensation to sales representatives. These include:
This is the total dollar value of products sold by a sales representative. Sales Volume is the most important metric to pay incentives, as it directly relates to the company’s revenue.
This is the percentage of a sales rep or sales team’s sales quota achieved. Sales representatives or teams who consistently meet or exceed their quotas may be considered as high performers.
This is the difference between the cost of goods sold and the revenue generated from selling those goods. Sales representatives who generate a higher gross margin may be eligible for higher incentives.
This is the percentage of total sales in a specific market or geographic area that a company holds. Sales representatives who increase their company’s market share may be eligible for incentives.
Number of New Accounts
Sales representatives who open new accounts for their company may be eligible for incentives.
This is the percentage of a specific product sold within a given market or customer segment. Sales representatives who increase the penetration of their company’s products may be eligible for incentives.
Sales representatives or teams who retain existing customers for a certain period may be considered as high performers.
Sales representatives or teams who are successful in generating leads for the company may be considered high performers eligible for incentives.
Sales Cycle Time
This is the time it takes for a sale to be completed from initial contact to close. Sales representatives or teams with shorter sales cycle times may be considered as high performers.
This is the ratio of sales to expenses. Sales representatives or teams with high sales efficiency may be considered high performers eligible for incentives.
It is important to note that not all companies use the same metrics, and some may use a combination of different metrics to pay incentives. Varying emphasis may be placed on certain metrics based on the medical device companies’ go-to-market strategy and the objective they want to achieve in the year.
Processing & Payout Frequency
The frequency at which incentives are paid in the medical device industry can vary depending on the company and the specific sales compensation plan. Few medical device companies may pay incentives monthly, while others may pay them quarterly or annually. They may sometimes pay incentives for achieving specific milestones or reaching certain sales targets. These incentives may be paid out on a one-time basis rather than on a regular schedule. It’s also common to see that sales incentives are paid out regularly, typically at the end of each month or quarter, while bonuses may be awarded annually based on overall performance.
It’s important to note that the frequency of incentive payouts can impact sales representatives’ motivation and performance. For example, frequent payouts may motivate sales representatives to perform consistently, while infrequent payouts may lead to a lack of motivation.
Medical Device companies need to consider the potential impact of the incentive payout frequency on sales representatives’ motivation and performance when designing their sales compensation plans.
There are several sales compensation challenges that companies in the medical device industry may face. These include:
Aligning sales compensation plan with company goals
Incentivate’s plan effectiveness functionality helps medical device companies’ administrators identify the overall efficiency of the sales compensation plan. Insights like the plan being overly aggressive or conservative allow them to identify the metrics pulling the plan down, leading to a drop in sales reps’ incentives or vice-versa. Once the root cause is identified, administrators can use the no-code functionality to tweak the plan hence aligning the sales compensation plan with the company’s overall goals and objectives.
Balancing short-term and long-term incentives
Companies may struggle to balance short-term incentives, such as rolling out short-burst contests or schemes to push specific products or just penetrating the market because of macroeconomic and localized challenges. Using Incentivate, administrators can configure these schemes on the fly while simulating the impact on overall business in conjunction with the long-term annual sales compensation plan.
Increased visibility for sales representatives
Incentivate designs personalized dashboards for everyone aligned with their sales compensation plan and update them almost near-real-time. This ensures your salespeople have enough visibility into how their incentives are calculated. If salespeople need help understanding their incentives, they may end up shadow accounting which eats up a significant part of their sales time.
Managing the cost of sales compensation
A plethora of sales compensation solutions out in the market right now need the ability to write code. As a result, medical device companies depend on vendor resources, which leads to additional cost of ownership comprising additional billables, increased turnaround time, and pay-out delays leading to demotivation, and eventual attrition, which increases the hiring and onboarding costs. Incentivate makes you, as the program administrator, self-sufficient to configure the necessary changes without being dependent on our team.
Lack of timely insights and the inability of an organization to develop a sense of transparency results in demotivation and leads your salesforce to leave for better opportunities. Incentivate provides personalized and actionable insights to individual sales reps. It helps them identify the focus areas and carve out their sales plan for the week, month, or quarter. These near-real-time insights help them make timely decisions and avoid losing sales compensation. All of this leads to a satisfied salesperson; at the end of the day, that is what you want as an organization.
The evolution of remote work post-COVID pandemic has increased the overheads in managing queries from remote salesforce. Incentivate’s dispute management system helps sales reps raise incentive-specific queries on the fly without getting into the back-and-forth hassles that keep on adding pain to the process.
Keeping up with the changing market trends
The medical device industry is constantly evolving, with new technologies and products being developed all the time. This can make it challenging as the time to design a supporting sales compensation plan and replicate it within the legacy platform is minimal. As a result, there’s chaos in the entire process, leaving you with a set of dissatisfied stakeholders. You can say goodbye to these challenges with Incentivate.