Oldest Rule of Sales Compensation Design is Wrong banner

One of the oldest axioms of sales compensation design is that incentive plans should be easy to understand, so that salespeople can quickly calculate how much they’ve earned or stand to earn from any sale.

The principle of super-simplicity is repeated so often that it has become a cliché. Sales operations leaders are always being told to design plans basic enough for everyone to grasp them immediately.

This piece of advice is a good one, if you want your sales team spending valuable time performing pay calculations. If you want your sales team cultivating opportunities, following leads, and closing deals, however, you may want to approach your plan a little differently.

Here’s the problem: sales compensation plans are complicated. A very basic sales plan probably doesn’t address all the conditions that need to be accounted for

There are many, many factors that need to be integrated into a successful incentive design. Consider just a few of the variables:

  • Context: What is your company’s place in the overall industry? Are you a market leader with a loyal customer base, or a newcomer seeking to attract top sellers to your team?
  • Strategy: Which products do you prioritize? What approach is your marketing department trying to develop?
  • Cost of Sales: What are the margins when you factor in overhead and other expenses? What behavior are you trying to promote on your sales team accordingly?
  • Leverage: How much incentive compensation do you have available for excellent, above-quota performance?

Taken together, these and other factors are going to affect your pay mix, territory and quota alignment, target compensation, payout frequency, and performance measures. That’s a lot for any sales rep to keep in mind when doing back-of-hand calculations to plan their next steps.

Learn more about our Incentive Compensation Management module

Why over-simplify a sales compensation plan if you don’t have to? Of course, sales teams want to keep track of their potential earnings, but with the right sales performance management platform, even the most complicated plan is as easy as it needs to be. Keep things simple and let the software do the calculating.

To see how your sales team can negotiate easily and quickly with even the most complex compensation plan, try a demo of Obero SPM.

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