Compensating Salespeople at the Expansion Stage

For some hot startup companies, sales quotas and goal setting aren’t major issues. Salespeople (and their managers) are often cruising on the initial wave of success and enjoying the prosperous ride.

Those companies’ sales teams are generally small and have a very unstructured compensation plan. In fact, many of its sales people are being paid a percentage of the dollar of closed sales and do not have specific targets or quotas.
That’s great for salespeople in hot companies, with hot technologies, and great market economics. The sales representative is usually quite successful and making a nice living for themselves.

The question is: Can this way of compensating sales continue and scale forward as the company grows?

I don’t think so. While that compensation structure works well when getting started, as companies move into hyper growth with aggressive targets against building a big company with big revenues, a sales team without quotas or a simple structured plan often scales too slowly.

The truth is that sales compensation can be a tricky issue for young expansion stage businesses that are attempting to control and strategically plan for their rapid growth. In fact, it’s a common issue for companies of all shapes and sizes.

According to Deloitte’s 2010 Strategic Sales Compensation Survey (which polled 250 sales leaders), 75 percent of businesses find sales compensation at least moderately challenging to administer and 57 percent are not satisfied with their current compensation plans.

So, how do you go about designing an effective (and fair) sales compensation plan?

Inc.com’s Elizabeth Wasserman wrote an incredibly in-depth article about a year ago that laid out a very detailed framework, useful formulas, and a process for implementation. But when we’re talking more directly about expansion stage companies trying to scale their sales teams and compensation plans, here are a few of my own suggestions:

Get to Quotas Quickly

Great sales people love attainable quotas. They strive for achievement and will last far longer in your organization than those without them, even if they are making more money elsewhere.

Put a $ on Quota Attainment

Don’t just assign a percentage against closed dollars. Take a percentage of the agreed upon compensation package and reward the attainment. If possible, I suggest monthly versus quarterly targets. It encourages overachievement (NOW) and eliminates sand bagging.

Make Overachievement Compensation Worth Something

In the expansion stage, overachievement is king. It will encourage a killer instinct and will make people want to work for your company. The key is to really think through the quotas and determine that they are attainable.

If It’s Not Broken, Don’t Fix It

If your sales people are hitting quotas and the economic model works, DON’T INCREASE THEM. If you increase quotas to unattainable numbers, guess what happens? Salespeople begin to miss quota, they become unhappy or unmotivated, and their sales performance suffers as a result.

ZS Associates sales consultant Chad Albrecht penned a great article on quota-based compensation plans for Sales and Marketing Professionals, highlighting the dos and donts of quota setting. Among his suggestions:

• Find true potential: If your salespeople are selling into different markets or categories, the differences in potential can have an impact on the attainable quota those salespeople. So don’t maintain a one-size-fits-all quota for every territory, category, or segment.
• Use a rigorous methodology to set quotas: Analyzing existing sales data and sales potential in each territory will give sales managers a much clearer picture of where quotas should be set. Albrecht suggests keeping the process consistent across all categories in order to avoid any confusion among the sales staff.
• Give managers a voice: In order to set quotas that are fair and attainable across all levels of the organization, it’s important to gain insight from the managers overseeing the operation.

Setting quotas and creating sales compensation packages at the expansion stage is anything but an exact science. But the tips above are a few good jumping off points if you’re a startup moving to the expansion stage, or a growth stage company struggling to move past the days of unstructured, percentage-based compensation.

Successful sales compensation at the expansion stage takes a deep understanding of your staff, economic model, market, and aspirations. Those things must work in harmony to truly design a plan that will motivate your salespeople and continue to reward them for their success.