1. Under-utilizing their power
Most companies underutilize the power of sales incentives. Sales Incentives are the biggest influencer of sales behavior and biggest impact on revenue (3X more than marketing spend). So please, spend time and effort designing it to your context, your priorities, and the behavior important to you, in the current situation. The plan structure will evolve based on the stage you are in. It could e.g. start with acquiring more customers, then move to increase average deal size, and eventually reduce churn.
Whatever happens, don’t reuse a plan used at another company! The power of comp plans and the sizeable spending deserve better!
2. Treating Payouts as an Expense, not as an Investment
Companies typically spend 4-5% of their annual revenue on paying sales incentives. That’s a significant spend.
Many companies see it as a payroll expense that they need to do to attract and hire sales talent. If it is an expense, then why pay it as a variable and not as a fixed salary?
Few see it as an investment, to maximize business performance. In which case, how do you measure, monitor, and maximize the return? As with any other investment, you should balance the mix for optimum return.
3. Over-Simplifying them, at the cost of alignment
The two most important attributes of a good comp plan are that it should be ‘simple’ and it should be ‘aligned’. If there is a need to lean towards one – lean towards alignment and use technology to explain and keep transparent.
Using simple, revenue-based plans is a throwback to the on-premise license business, not suited to SaaS businesses. Although most businesses have one primary goal, usually revenue growth, it is rarely the only one. Reducing churn, acquiring more customers, maintaining profitability, getting more cash upfront, driving growth from new markets/products, etc. are usually the secondary ones.
By keeping the comp structure focused only on Revenue you are ignoring the secondary goals that determine the quality of the revenue.
4. Ignoring the core performers while designing the plan
Overachievers typically only form 10% of a team and are self-motivated. It’s the core performers who form the bulk (70% of the team) and moving the needle there, can bring significant revenue gains and consistency (reducing over-dependence on the top performers). Similarly, there should be something in the plan for the underachievers. A good comp plan is designed to increase the performance of the entire team.
5. Not differentiating between mediocrity and excellence
Single-rate plans give reasons for mediocre performers to stay and maintain the status quo, while frustrating overachievers and not giving them any incentive to stretch or push harder.
Multi-Tier plans, on the other hand, have something for everyone – discouraging mediocrity, nudging core performers towards excellence, and over-achievers to stretch more.
6. Delaying payment of incentives
Do you track weekly or monthly closures? Then why pay only once a quarter? If this is being done to avoid the computation hassle, then use technology to do it more frequently.
Whether the sales rep has done well or badly, they should see that impact in the nearest possible paycheck.
(Tip: We are not talking about more frequent quotas here. That needs to be aligned to the sales cycle and can even be annual for larger enterprise deals.)
7. Not using bonuses and kickers (additional incentives)
Give more importance to your quotas by giving a bonus on quota achievement or rolling quarter achievement, this brings consistency. In fact, "commission + bonus" plans are proven to improve performance over "commission only" even when the total payout was the same.
Give kickers on secondary goals (multi-year contracts, upfront payment, etc). Promote collaboration by giving a kicker on the achievement of the team’s goals.