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Last week’s MBA Mondays<\/a> post about Bookings, Revenues, and Collections<\/a> generated a number of comments and questions about sales commission plans. So I decided to ask my friend and AVC community member Jim Keenan<\/a> to write a guest post on the topic. Jim’s blog, A Sales Guy<\/a>, is a great read for those who want to get into the mind of a sales leader. So with that intro, here are Jim’s high level thoughts on setting up commission plans. I know the discussion on this post is going to be a good one. So make sure to click on the comments link and if you are so inclined, please let us know what you think on this topic.<\/p>\n \u2014\u2013<\/p>\n I get asked a lot how to build a good commission plan. \u00a0I give the same answer every time. \u00a0Keep it simple and align it with company goals.<\/p>\n It amazes me how often companies screw this up.<\/p>\n Sales people are coin operated. \u00a0Tell them they get a buck if they go get a rock, you’ll get a rock, a whole lot of rocks. \u00a0Tell them they get two bucks for red rocks, you’ll get a lot of red rocks, but fewer rocks in general.<\/p>\n Sales people don’t hear what you say; they hear what you pay!<\/p>\n Commission plans need to do two things; motivate sales people and sell product. \u00a0They should align what you say, with what you pay.<\/p>\n The killer commission plan starts with two critical questions; Commission plans drive behavior, get it wrong or don’t align commission incentives with the company\u2019s goals you\u2019ll get everything you don\u2019t want and little of what you do want.<\/p>\n What do you want to sell? Do you want to sell your existing products or your new products? \u00a0Do you want to sell your services or your software? \u00a0 Do you want more revenue or higher margin? \u00a0 Answering these questions up front matters.\u00a0 Whatever you put in your commission plan you WILL get.\u00a0 Build your plan for what you want to sell.<\/p>\n How do you want the team to behave? Do you want new accounts and new business or more business from existing accounts?\u00a0\u00a0 If you want new accounts pay for hunting, if you want them to work the accounts you already have, then pay for farming.\u00a0\u00a0 What ever you pay for you WILL get.\u00a0 Build your plan for how you want the team to act.<\/p>\n The key is to sit down with finance, product and marketing with the budget<\/a> in hand and ask the questions; what do we need to sell by the end of the year?\u00a0 Where do we need the business to be?\u00a0 How much revenue do we need?\u00a0 How much margin do we want?\u00a0 How many new customers do we need?\u00a0 How much growth are we looking for?\u00a0 How do we define success at the end of the year?\u00a0\u00a0 Once these questions are answered, incent the sales team to do exactly that.\u00a0 What ever you pay for you will get.<\/p>\n Once the incentives have been nailed and properly aligned, make the plan dead, stupid, simple.\u00a0\u00a0 Don\u2019t overcomplicate it.\u00a0 Don\u2019t try to be sophisticated, creating fancy algorithms and fancy spreadsheets filled with if\/thens.\u00a0\u00a0 Make the plan “simple stupid.”<\/p>\n A plan is simple stupid if a sales person knows exactly what they will be paid on a deal without looking it up.\u00a0 Simple plans motivate sales teams.\u00a0 They know what their deals are worth and chase them accordingly.<\/p>\n Complicated plans de-motivate.\u00a0\u00a0 When sales doesn\u2019t know how much they will get paid on a deal, motivation is nipped.\u00a0\u00a0 Make sure it\u2019s easy for sales to figure out what they get paid on a deal by deal basis.<\/p>\n In addition to being dead, stupid, simple, all plans must have accelerators.\u00a0 Don\u2019t be greedy.\u00a0 Don\u2019t look to cap sales earnings.\u00a0 If they are selling more, pay them more.\u00a0\u00a0 Accelerators are when more commission is paid for a deal after a certain threshold is met, usually quota.<\/p>\n Finally, AND most important, once the plan is done DON’T MESS WITH IT.\u00a0 Nothing is more detrimental to a sales environment than changing the commission plan on the fly.\u00a0 You have to live with what you have.<\/p>\n Commission plans are the lifeblood of a sales team.\u00a0 Get them right; start counting the money.\u00a0 Get them wrong; it\u2019ll be a long year.<\/p>\n Remember; Sales people don\u2019t hear what you say, they hear what you pay . . . so pay right.<\/p>\n <\/p>\n andyswan<\/a> added:<\/p>\n Great post.<\/p>\n Would add one thing: EMBRACE the idea of salespeople making more than you do!<\/p>\n You would not believe how many times I’ve seen a CEO or founder decide he needed to “adjust” the commission structure because his top salesperson was making more than him.<\/p>\n Pure idiocy and ego. I always react the same “What, you want him to get LESS sales?” But it does happen, a lot.<\/p>\n Align incentives and hope that a LOT of people get very rich from your business. Remember, Hyman Roth \ud83d\ude42<\/p>\n<\/div>\n<\/blockquote>\n <\/p>\n This article was originally written by Fred Wilson on August 23, 2010 here<\/a>.<\/p>\n","protected":false},"excerpt":{"rendered":" Last week’s MBA Mondays<\/a> post about Bookings, Revenues, and Collections<\/a> generated a number of comments and questions about sales commission plans. So I decided to ask my friend and AVC community member Jim Keenan<\/a> to write a guest post on the topic. Jim’s blog, A Sales Guy<\/a>, is a great read for those…<\/p>\n
\n1) What do you want to sell?
\n2) How do you want the sales team to behave?<\/p>\nFrom the comments<\/h3>\n
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