What Do You Pay Your Sales Staff?

It’s a new year, the chance for a fresh start, and salespeople and sales executives everywhere are thinking about… compensation plans. It’s time to roll out the 1999 incentive plans to the sales staff, and if the calls we’ve been getting here are any indication, there is a lot of concern about how to do it right.

On the one hand, sales management wants to be sure to fairly compensate the sales force for the work they do and the revenue they generate. Compensation is a key ingredient of employee retention, and sales people who believe their comp plans are unfair or impossible to meet are likely to get restless. In this market, this can be a very costly mistake.

At the same time, the site is not yet profitable, and the financial executives are growing tired of signing incentive compensation checks for salespeople (and managers!) whom they believe should be selling more. That’s understandable too; no one wants to pay top dollar for team members who aren’t making a significant contribution.

Internet-Specific Challenges

There are two conditions that make the task of designing appropriate incentive programs much more difficult in the Internet ad field. First, the market size is impossible to forecast with any accuracy. There is no reliable, current data on what individual advertisers are actually spending, in which markets, or how your particular market will change in the year ahead.

Of the limited data that does exist, real dollar purchases get mixed in with barters. Unless you are compensating your sales force on bartered ads, this sort of data won’t help you.

It gets even more difficult to predict as you look deeper, to the individual sales territory quotas. With new accounts jumping into the fray everyday, how can you hope to predict who your good customers will be a year or even a quarter from now?

This first challenge is not unique, it’s typical of any new product category. Whenever a market is in the early stages of growth, before customer sets are well-defined, or when a high percentage of sales are to first-time buyers, it is very difficult to set believable quotas. Though the overall market appears to be growing very quickly, there is little specific data about what level of growth is reasonable in your market segment.

The second challenge is more specific to the Internet ad space… it is extremely difficult for most content sites to predict traffic levels, and especially difficult to predict available impressions in the more specialized sub-sets of ad avails, so no one really knows what will be available to sell. If a salesperson misses their quota only because there was nothing left to sell, the comp plan has become a significant disincentive. Not what was intended!

What’s A Manager To Do?

Though complicated, there are solutions. First, make sure you are really clear on what behavior and results you intend to incent.

Think about the business’s strategic goals, and figure out what fills them best. Many compensation plans reward total revenue dollars, when the real business goal must actually be breaking new accounts, building customer loyalty with renewal business, selling more profitable inventory, selling-up existing accounts, breaking new categories of customers, or any number of other goals. Make sure you know exactly what you want your salespeople spending time and energy on, and reward that.

Once the list of objectives is known, narrow it down to the top two or three. Find other non-financial ways to encourage the rest. When comp plans attempt to promote lots of disparate behaviors, they get confusing; once that happens, they stop being good motivators. Don’t lose the most important benefit of variable/incentive compensation by blurring the communication.

If inventory projection is an issue for your site, consider a system that factors in percent of available inventory sold into the revenue quota. This protects the salesperson from being penalized for sales lost due to lack of supply, without taking the focus completely off revenue.

As to setting quotas in an information void, think about shortening the time horizon. Quarterly quotas in an otherwise standardized annual plan allow you to adjust to market conditions and the trend-line of your business, which avoids both gross shortfalls and the unearned windfalls that can bankrupt a business.

Windfall payouts can be appropriate when overall plan performance results in pure incremental profit. They are harder to justify when resulting more from market growth than from exceptional sales performance, and especially when those payments stand in the way of overall profitability.

There is no sure-fire, perfect compensation plan, and incentive compensation is far from the only component of keeping a sales force motivated and productive. But a good plan, one that is perceived as fair and achievable by the sales team, can be a superb way to get your sales year off to a great start, and to keep motivation and energy levels high throughout the year.