Motivating Sales People ? 2018 by Jon Freeman

(You can find a downloadable pdf version of this under my LI profile; link to me and open the "more" part of my summary at the top of my profile)

INTRODUCTION TO SALES TEAM MOTIVATION

In my career, poor sales plans have caused me to look for a new job more than once. For the record that’s about 10% of my jobs! Although the bulk of my reasons for leaving came from poor managers. A managers’ ability to motivate, and more importantly to inspire, means the difference between keeping and losing great salespeople – not mentioning the impact to the company’s bottom line. Compensation plans are a great motivator, and indeed companies and managers who pay well have a higher probability of holding onto great reps. But what’s the cost of retention (e.g., are you overpaying for motivational issues)? One thing any great sales leader can do is to ensure their compensation and other incentive plans are structured in a way that incents the highest performance possible, encourages long-term commitments from salespeople to the organization, and does all this with the least capital outlay.

We start with a look at what things motivate salespeople. Then look how we can use this information as parts of formal compensation plans and other motivational incentives proven to work.

INTERNAL AND EXTERNAL FACTORS TO CONSIDER

At a high level, salespeople are motivated by two categories: 

1)     External elements, like clear goals, territory ownership and rules relating to their goals (e.g., the commission plan), and that of the team and peer performances,

2)     Internal forces like individuals learned behavior, personal value systems, and different personality types. One remarkable aspect is an individual’s perception of the value of money ingrained many times by their families. I’ve found this expressed most acutely in the reps you can’t inspire to make more money by selling more. They have a mental image of what they deserve from their childhood that most sales managers find difficult or impossible to remedy.

The first category we have the most control over. The second we have less power over, but regarding influence, it represents the bulk of what drives us. So, salespeople will be driven in the short run by the external signals, nudges or clear dictates from their work environment. And over the long-term salespeople will be inspired to overachieve by using what we know about their values/behaviors/personality traits and by showing the benefits coming from their higher achievement. Some will argue that different compensation plans are needed and more relatable or produce more motivation based on the sales team's age, the transaction type (e.g., short simple or long complex transactions), or the level of performance regularly delivered. There’s a little truth to this and you can address each issue with topics discussed here.

LONG TERM AND SHORT TERM PLAN CONSIDERATIONS

Different motivators exist for long-term versus the short term. Examples of long-term motivators are the personal recognition of achievements by management with president’s trips, and quarterly rep awards/recognition. While tactics like spot bonus recognizing exceptional contributions to the company address actions in the short term. We can all use our imagination as Napoleon famously did with his lesson on ribbons as a reward (Napoleon is credited with the introduction of ribbons as a military incentive/motivational tactic). One reliable way to analyze motivations is using Maslow’s Hierarchy of Needs as a model and mapping motivational plan elements (from the commission plan and other incentives) against each level. Just two observations about Maslow’s model which should parallel your motivational plans: 1) There are no punishments, and 2) The base level of the model carries more influence/motivation for a salesperson than non-sales people. The second point is important since a significant portion of a salesperson’s total compensation is variable and tied to actual results (if not, it should be).

Maslow’s Hierarchy of Needs

REWARDS AND PUNISHMENT

Salespeople love competitive rewards and will work hard to beat their peers for any top honors available to them. For this reason, your company should have a rich set of competitive plans focused on individual and team motivation with some being regular planned contests as well as period or unique programs to keep things fresh and interesting.

As noted earlier, salespeople hate punishment, more than non-salespeople, as a result of the amount of rejection and failures they face in the course of their average day. Consider that failures and rejection rates for salespeople are orders of magnitude higher than non-salespeople (this is also an excellent way to differentiate part-time salespeople from professional salespeople when deciding who to offer formal commission plans to). Real salespeople face a regular assault of failures and rejection daily. So use all your energy on the creation of rewards. Avoid plans with punishment elements and avoid communicating any incentive in rhetoric that risk them looking like punishments.

I remember my first award, a trophy for winning a sailing contest while sailing my Sunfish sailboat in dozens of competitions growing up. The next significant achievement was a Varsity Letter that I got Freshmen year of high school. In a school of several thousand students, most will understand the rare nature of freshmen gaining a varsity letter. Before you congratulate me, it was for keeping score for baseball (great practice for quantitative analysis). The official position was Varsity Baseball Statistician. But, each award drove a higher feeling of individual worth and inspired me to set higher personal goals. I share these examples to point out the value of prizes to me were high and placed into my system of values early. If you are searching for a great salesperson, you want to understand their value systems well enough to know they have a higher than normal value system of rewards. Understanding why they have this system and leveraging it in your interactions is what will trigger total focus on results from them. 

IMPORTANCE OF INDIVIDUAL VALUE SYSTEMS

I like asking in 1st interviews, “What’s your philosophy of money?” This question comes from my hero John D. Rockefeller Sr’s autobiographical book called “Business” (found on the Google Books project site – it’s a really old but good one). He said that a good business person should have a system of values for their money. Since salespeople are driven by money more acutely than the norm, they should be expected to have a highly developed philosophy for their money. The only wrong answer, in my opinion, is something like “wow, that’s a great question, I never thought of that.” My philosophy is that money is a transaction medium that simplifies the process of trading so that attention can be focused on the value of the trade to each party; this avoids the time spent talking about the money. When salespeople jump directly to cost, the conversation will rapidly turn to discounting (and the dropping of pants), they are choosing to spend time not directly related to the customer’s value realization. A great question a salesperson should ask if using this behavior is, “how does offering a discount enhance the value of your solution to the prospect?” Then consider business purchases/investments are made to gain a payback of 4x-10x or more of the original cost. So, a 10% discount may have a place in a commodity sale or to drive some unnaturally rapid close date, but won’t ever enhance the solutions value in any material way for the customer. How a salesperson values money is critical to their success and bears special attention at the individual level to understand what levers you have that may provide higher levels of performance.

MONITARY INCENTIVE SYSTEMS

Incentive systems for salespeople must be considered different from those of non-sales. Since incentive systems are typically part of the sales team’s motivation and not so much for other departments, it’s advisable to not broadcast incentive programs across non-sales departments. If we assume that salespeople are hired specifically to produce revenue, we must incent with this specific result in mind. 

Anyone in sales for a short period can recognize a dysfunctional sales incentive plan quickly. Management should never take lightly the complaints about incentive plans. This isn’t to say that all complaints need corrective action though, a close look at the complaint and its source are always warranted though. Each time I’ve encountered a poor commission plan as a salesperson, the only choice for me was to search out a new home. It’s rare to see companies willing to change their plans and the reasons sadly never seem to focus on the lack of motivation they deliver. As a sales team leader I’ve focused on fixing these, as a top priority, wherever I have had the power to do so.

Here are examples of dysfunctional plan elements I have experienced 1st hand, just after these is a list of positive incentive plans then another list of non-compensation based motivational tools for salespeople:

-                     Systems using values and measures which are out of a reps control (the proper rule is to measure and pay only what the rep can control the outcome), team incentives are ok but limit the team size to something individuals can make a material difference,

-                     Where payouts aren’t distributed logarithmically (use the 80-20 Pareto Principle not a bell curve). Another way to say it, “top producers should make what looks like an unfair share,” start with the budget dollars at quota and spread them according to the Pareto Principle,

-                     Lack of accelerators (accelerators are when pay is delivered at higher rates after quota is achieved encouraging everyone to sprint to quota to make “the real money”), a good target to have is for 60%+ of the team to be over quota in any quarter,

-                     Compensation Caps, telling someone that once they meet their quota, they will not make any more commissions or variable compensation – the effect is to tell them to take a vacation until the next quarter or whenever the plan resets, the alternative is that many reps will delay their deals from closing until the following period, if you’re experiencing a wave of sales early in any period you may have this problem,

-                     Deficit Buckets. They are a commonly found in companies who provide a “draw” on future commissions for new salespeople. A rep must pay this money back in following periods from the commissions they earn in those periods, which is where the “deficit” enters. No plan should ever approach an incentive with a structure that looks like a punishment or simply provides for lower motivation in later periods. Instead of a draw consider a smaller “starter quota” to incentivize early sales performance with new reps, this incents reps to sell hard early in their new position and has a risk of the system “breaking” when a rep has great success. Consider this risk the price of finding a great salesperson,

-                     Arbitrary percent payouts where each sale’s payout is different and only loosely tied to the total dollar value, profitability, day of the week, the mood of the manager, etc. All incentives should be part of a well-defined and clearly communicated plan. If you’re finding yourself forced to add quarter end incentives to hit the sales targets, you have a forecasting problem and/or a problem with your overall incentive system,

-                     Mid transaction planned payment change (e.g. the plan said you’d make $10,000, but you are given $1,000 because of a technicality), most sales plans include a clause that informs reps that management can make this type of change. Just because you can make a change does not exclude it belonging in the dysfunctional list. The example given here actually happened to me and resulted in me finding another place to apply my skills. And, in this case the manager responsible also left the company a few months later. I’m sure his departure wasn’t for my sake, but this behavior likely forced many good reps to find new employers,

-                     Any compensation plan that takes more than 15 minutes to explain. I was once asked to sit through a three day training on a sales compensation plan I had already been tracked against for three months. I resigned the 2nd day. The leader of this company was as dysfunctional as the plan (this is an excellent way for anyone in sales to know they are stepping into a dysfunctional company – try to get your hands on the comp plan before taking an offer). This was a fortune 10 company at the time, now Fortune 28 and still dropping,

-                     Rewarding Unethical Behavior. If you are confronted with this please put down this writing and start a search for a new job, not only are you hurting your career you are hurting the people around you. Do I need to say it – “What would your mother say?” I was proposed an unethical and possibly fraudulent tactic as a solution to a problem one time and no longer speak to the business manager who suggested it. My time in sales is by no means innocent, but any poor behavior was limited to my first couple of years, without guidance, so some rules got broken. When in a position where you must consider doing something like this you simply haven’t been working hard enough. I’ve never encountered big problems that can’t be solved from hard/smart work. Unethical business tactics are simply a sign of laziness and/or incompetence.

-                     Products, markets or sales types (like new or add-on) paid differently to the same salesperson. Segmented sales compensation should take place at the rep specialization level (i.e. different sales groups for different markets or products are where compensation plans can be different). If the objective is profit maximization, the logic here to pay everything at the same rate is rock solid. Some people will argue that margins on some products are lower, so they want to discourage some sales focus on these items and/or encourage action to concentrate on a higher profit sale. I would say most of these are product management issue, not rep commission plan problems. Keep reps focused on uncovering the next deal, never “the next deal if it’s this type or that,” keeping a simple focus is critical. Would any business owner want a rep to pass on a deal because it paid a little less for a chance to close a higher compensated deal maybe? 

Examples of elements of good sales compensation plans are:

-                     MBO (Measurement by Objectives), used frequently when some early stage or funnel activities need attention, as with a new product launch needing feedback on sales process options from 1st customer conversations. These are not sales results based really, they are tactical activity based programs. Be sure that all measures are quantitative and avoid all qualitative measures,

-                     Quota-based payouts (instead of paying as a percent of total dollars, pay against a quota out of a pool of commission dollars per rep, up to 100% of that pool at one percent level) accelerators would kick in for overachievement at high percent levels. Financial minds will lose their cool about accelerators if not focused on the marginal profit from these added dollars, remember to bring this up when discussing accelerators with your financial people. Mention that quotas will be reviewed and adjusted as appropriate to ensure forecasts and budgets are conformed to. Payouts based on a percent of gross sales instead of a quota will result in worse optics when increasing quotas, reduce the focus on any quota, and cause hard feelings when reduce percent payouts is needed due to changing margins. A quota-based target with payout against achievement of the objective offers a system that obscures this problem with quota increases while avoiding having to change percent payouts. If you want your quotas to have any meaning, there’s no other way to structure your commissions,

-                     Quotas set annually for all periods during the year (quarter or months), holding to the numbers for no less than 6 months. So, you give people some chance to overproduce and achieve accelerators but can adjust quotas mid-point through the year to ensure overproduction doesn’t break the budget. Keep a target of 60% quota achievement in mind, and anything outside of this range indicates poor quotas, poor sales performance by the team, or a combination of the two. A close analysis of quotas and attainments with management, marketing and the sales team is needed no less than once a quarter in my opinion.

-                     Quota Club, sometimes called Presidents Club or just Club usually consisting of all quota achievers or the top x% of achievers above quota. This is a great place to target delivery of higher level Maslow awards like plaques or trophies (recall the Napoleon reference earlier)

-                     Accelerated pay during new rep start-up period. Like having a 4X normal payout rate during the first period equal to the companies average sales cycle. Alternatively, lowering the quota without adjusting the payout (same effect as the prior idea and the one I’ve used many times). Use these ideas instead of a draw. Draws tend to incentivize lazy behavior (consciously and unconsciously) where an accelerator incentivizes a fast start for a new rep.

-                     Linked total compensation to quota the person carries. So a rep with a higher quota will have a higher expected total compensation (base plus commissions). Can you imagine the next time someone asks for a raise? What will you say? Higher target compensation is the natural time to add quota responsibility. Put another way, this means that when a rep asks for a raise in their base pay you now have a lever to pull in the negotiation, the higher quota lever. Only once have I had a rep refuse the higher quota and they also took back their request for a raise in their base pay (the rep stayed around for the balance of time before being bought out).

NON-COMPENSATION BASED MOTIVATIONAL TACTICS

Not all behavior adjustments require an incentive. Salary provides a little leverage for necessary behaviors like entering accurate data into a CRM. It’s also a good lever to ensure people are in the office at a specific time and stay through the day (the exception being only for the regular overproducers). Salary is also a lever to ensure conformity to the company culture, regular submission of accurate commission reports, and many other operational necessities of the business.

There are other ways to motivate salespeople outside of incentives/contests and compensation plans. Here are a few other examples, there are many others only limited by the number of great leaders.

-                     A quarterly review of each rep’s performance presented by each rep in front of the team helps deliver performance improvements from healthy competitive pressures. Be sure to use a template so that reps focus on the points you want and limit the time they eat up creating them. One slide I’ve always used is titled “why I show up every day.” This slide helps me to understand their motivational value system. I leverage what I learn here to motivate them or to uncover areas of personal improvement needed. This area falls under the formal study of performance psychology. Some might call some of this manipulative, but how could that be if you’re giving someone exactly what they want? (better performance tied to why they show up every day)

-                     Regular activity reports shared with the team and a summary shared with the group and management. I also use a standardized report for these so that everyone’s focused on what is needed to achieve goals. Many reps won’t review their peer’s reports (most will filter them out of their inbox if they aren’t interested) but will study a summary from the sales leader. Seeing what others are doing compared to themselves and how the organization is doing is a great motivator.

-                     CRM reports/charts/dashboards showing individual performance comparisons over time and comparisons to the team. I personally like every rep to have their own dashboard which tracks their performance against the team during the tracking period as well as comparing their performance to that from their prior periods.

SIMPLICITY IS THE KEY TO A GREAT PLAN

Simplicity is the key to a great commission plan. Try to explain it to someone you trust as a test. If a rep can’t understand how to compute pay in less than 15 minutes you need to work on making it more straightforward. The list of great ideas for sales plans is infinite. However, the best way to test a new plan is to share it with your top performers before making any final decisions. Being inclusive in your planning is also a great way to motivate salespeople. But, be sure to let them know that no part of the plan is final till all parts are final otherwise risk hard feeling or fear from the team (assume they will talk about the test with other reps). Final note, don’t worry about elements to compensation that appear too small. I once had a behavior I needed to encourage reps into doing and only had $100 to offer (this was for very highly compensated salespeople). The reps laughed at me, saying that the amount wasn’t enough to gain their attention on the new action I wanted. The later results of the $100 incentive spoke for itself though. After the 1st quarter nearly all of the reps were earning the small incentive and doing what the business needed (the behavior was focused on helping new salespeople find and close their 1st deal). I haven’t spent any time discussing contests here since they are as different as the organizations I’ve worked with and would fill an essay of equal or greater length. But, it’s worth mentioning the key to a contest that works is also to keep it simple and of a short duration, just like commissions. Also, shoot for something that’s catchy (or as guys in advertising would say “sticky”)

SUMMARY

Long term and short term incentives are grouped by internal and external categories of items from the perspective of a salesperson. Understanding these drivers, in order to leverage those that are proven to influence and avoiding those proven disincentives is critical to a high performing team. A careful analysis of your compensation plans and other incentive plans reflected against the topics discussed here will help companies ensure maximum leverage with their incentives for the lowest possible costs. Along with higher performing teams a company will realize lower turnover and the resulting lower costs of sales replacements.

I hope you’ve enjoyed this and encourage you to comment, and read my other pieces related to efficient revenue generation. I’m also available for fractional CSO, consulting, and speaking engagements.