Sample Sales Compensation Plans Volume 1

Sample Sales Compensation Plans Volume 1
[email protected]
650-395-8301
http://newsigma.com
http://salescompinsights.com
Included in This Material
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Sample Sales Compensation Plans:
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Business Services
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Software
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SaaS
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Communications
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Distribution
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Medical Devices
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Page 2
Business Services
Solution Approach
Account Manager
Background and Issues
The company is a $1 billion in annual sales
technology outsourcing firm. Its core business, IT
staffing, is profitable and responsible for the majority
of the company’s cash flow. However, an influx of
lower-cost competitors is driving down the margin of
the core business . Management needs its accountmanagement field sales force to grow project-based
business and outsourcing contracts.
The current incentive plan provides Account
Managers a variable rate of commission on revenue
generated throughout the life of a contract, with the
rate based on gross margin of the service delivery.
Issues include:
• Flat growth over five-year period
• Reliance on core business
• Little urgency to close new contracts given the
commission streams from previously-sold, longterm contracts
Requirements for a new incentive plan included:
• Premium paid for new contracts and higher-value
deals (multi-year, high gross margin)
• Discount for core business
• Overall growth in account revenue
Management constructed the following plan
components:
Plan Component
Description
New Contracts
Commission
• % on new total contract value (TCV), up
to annual New TCV quota;
• % over-quota rate
• % credit on booking; % on launch
Gross Margin
Multiplier
• Applied to commissions earned above
based on margin achievement
• Sliding scale for points in between
Revenue Quota
(new contracts
and renewals)
• % of a target bonus for attainment
between threshold and 100%; >100% =
accelerator
• Minimum performance threshold
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Software
Solution Approach
Business Development
Background and Issues
The company develops business intelligence
software for medical and scientific use. It recently
acquired a similar-sized firm and integrated the two
sales forces. Each sales force used a different
compensation approach.
The acquired company paid its business
development (BD) reps on monthly recurring
revenue (MRR), while the acquiring company paid
the same role on expected gross margin at contract
booking. The mix of new business versus existingcontract renewals varied significantly across
territories.
Other issues included:
•
•
•
•
Different levels of renewal complexity – some are
automatic, others like selling new business
Limited focus on services
Lack of upside pay opportunity for high performers
Lack of transparency and history tied to contract
gross margin
Management needed one sales compensation plan for
the two groups of BD reps; requirements included:
• Simple yet flexible structure to accommodate the
different mixes of business across territories
– Allow managers to adjust the measure weights
and payment rates based on each
role/assignment
• Minimum performance requirements for services
revenue
Components of the new plan included:
Plan Component
Description
New Business
•
•
•
•
Renewals
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•
•
Based on total contract revenue value
(TCV) booked for software and services
% of target incentive paid for each
percent software and service quota
attained
Accelerator for software and service
attainment >100%
Accelerators for software attainment
>125% and > 140%
Based on attainment of an annual
renewals revenue goal
% of target incentive paid for each
percent renewals goal attained
SaaS
Solution Approach
Account Management
Background and Issues
The company generated $150 million in sales last
year offering cloud-based applications to help
enterprises optimize their marketing and sales
channels.
Its challenge confronting the new year was
sustaining growth. Customer churn increased while
many account managers complained about lower
commission rates for some revenue streams in the
current year’s plan.
Other issues included:
•
•
•
Lack of role clarity between sellers focused on
current accounts and new business from prospective
accounts
Lack of urgency on new business – rep complacency
due to sizable commission streams from prior-year
deals
Administrative complexity and lack of rep
understanding due to multiple payment schedules
and rates applied to various revenue opportunities
Management clarified the rules of engagement for
account managers and new business reps; requirements
for the new account manager plan included:
• Payments tied to goal achievement to encourage
retention and growth from current accounts
• Payments tied to first-year annual revenue realization
(ARR) and renewals
• No more than three components in the plan
Components of the new plan included:
Plan Component
Description
Monthly ARR
Quota
•
•
•
Quarterly ARR
Bonus
Services
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•
Based first –year annual recurring
revenue (ARR) booked each month
relative to a monthly quota
% of target incentive paid for each %
of quota up to 100% -- accelerators for
performance above quota
No cap
•
Based on attainment of a quarterly,
YTD ARR quota
Bonus for attainment of Q1 quota;
increased bonus for attainment of the
cumulative Q1+Q2 quota
•
% commission on all services revenue
Communications
Solution Approach
Territory Sales Rep
Background and Issues
The company is a $250 million regional provider of
telecommunication, digital and internet services to
residential and small-business customers.
While the company experienced steady revenue
growth over the prior five years, its territory sales
representatives as a group often earned above their
target incentive amount while the division missed its
revenue goal.
Features of the current plan included:
•
•
•
Commission-per-product-unit sold, with various rates
depending on the product or service type sold
No minimum performance requirement for payment
(pay on first dollar sold)
Quarterly bonus based on customer churn levels
The quarterly churn bonus measured customers
acquired over the prior 12 months. Reps complained
the company’s accounting for this was incomplete
and felt compelled to monitor installations and
customer service issues, which impacted new
acquisition productivity.
Management established monthly revenue quotas
for reps that aligned with the division’s quarterly
goals. It eliminated two-tier pricing and the
quarterly churn component after determining
territory reps could only reduce churn by offering
promotional pricing.
Requirements for the new territory sales rep plan
included:
• 100% of target incentive tied to revenue goal
achievement
• Quotas based on top-down allocation, target
product mix and average revenue per unit (RPU)
• Minimum performance threshold; no cap
Components of the new plan included:
Plan Component
Description
Monthly Revenue
Quota
•
•
•
•
•
Quarterly
Consistency
Bonus
•
•
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Based on contract booking value
Minimum performance for payment; %
of Target Incentive for each % quota up
to 100%
Target incentive for 100% quota
Accelerators above quota performance
Paid monthly
Bonus per quarter for quota
achievement in all three months of the
quarter
Lower payment if 2 out of 3 months
achieved
Distribution
Solution Approach
Inside Sales Specialist
Background and Issues
The company is one of the largest IT wholesale firms,
with global distribution and over $20 billion in sales
annually.
Its inside sales specialists (ISS) manage sales of
particular product categories for a targeted account
base. The ISS has significant pricing autonomy, often
functioning as a broker to manage supply and
demand between hundreds of manufacturers and
buyers.
The company moved to a goal-based incentive
approach after struggling to manage target
compensation levels using a commission approach.
It also struggled to manage ISS compensation
amounts associated with manufacturer-funded
campaigns (spiffs). Some ISS reps focused almost
exclusively on spiffs to maximize their income.
The company needed to manage spiff funding and
better balance ISS focus between revenue volume
and price protection.
Management set monthly revenue and gross margin
goals for each ISS assignment, and negotiated with
manufacturers in order to govern spiff programs and
limit the total amount each ISS could earn from
spiffs.
Management needed a dynamic approach for
balancing ISS focus and earnings between revenue
volume and gross margin percent. It devised a
matrix allowing for monthly adjustments to the
incremental payments for revenue and margin,
depending on the relative priority across product
category in any given month.
Components of the new plan included:
Plan Component
Description
Monthly Revenue
Quota
•
Payments based on percent of revenue
and gross margin goal attainment
GM
Percent of Target Incenitve
Goal +2
Excellence
Goal +1
Goal
Target
Goal -1
Goal -2 Threshold
Goal -2 Goal -1
100% Goal +1 Goal +2
Revenue Goal Attainment
Monthly
Campaign Fund
(Spiff)
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•
•
Opportunity for % of monthly target
incentive
Requires a minimum % of target matrix
earning achieved for Spiff eligibility
Medical Devices
Regional Sales Manager
Background and Issues
This medical capital equipment company doubled in
size when it acquired a manufacturer of medical
disposables.
The company’s regional sales managers (RSMs) now
supervised two disparate sales teams – one
responsible for capital equipment and the other for
disposables. A third role reported to the RSM – one
responsible for both capital equipment and
disposables.
Due to the degree of change going into 2010, the
company decided to leave unchanged the
commission compensation approach for disposable
reps. It paid capital equipment reps on revenue goal
attainment, with half sales credit earned at contract
booking, the other half at installation.
The mix of growth opportunity between capital and
disposables varied considerably across regions. The
company needed to set revenue goals for the two
business units and allocate those goals to each RSM.
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Solution Approach
The company devised a goal-based incentive
approach for RSMs, whereas each RSM earned their
target incentive amount for attainment of a capital
equipment and disposable revenue quota.
In addition to region-specific quotas, the company
adjusted the amount of target incentive dedicated to
each quota based on the relative priority between
capital and disposable sales in reach region.
The plan used one payment schedule for both capital
and disposable components, which included a
threshold and multiplier above quota. To help
ensure disposable reps attained minimum
performance standards, the RSM plan included a
component for individual rep quota attainment.
Plan Component
Description
Quarterly Capital
Equipment Sales
Quota
•
•
Quarterly
Disposable Sales
Quota
•
Quarterly Team
Attainment
Breadth
•
•
Based on the region’s capital
equipment sales relative to a quarterly
goal
Weight is assignment specific
Based on the region’s disposable sales
relative to a quarterly goal
Weight is assignment specific
% of the quarterly target incentive
based on the percent of total team
members hitting or exceeding quota