Sales Management - commission to differentiate!

One of my old bosses used to remind us that we had "permission to differentiate" provided we treated people fairly. I followed that principle when I designed a sales commission scheme based around peer groups. It turned out to be the most successful scheme I've ever developed.

I'd been observing the behaviour of a large sales team for a while when it occurred to me that I was witnessing three distinct personas:

The 'Lifestylers'

The salespeople in the first persona were working towards an individual lifestyle target that reflected the amount they wanted, or needed, to earn in any given period.?They'd work very hard at the beginning of the month until they'd met their lifestyle target. For the remainder of the month, they tended to relax, switch-off, and stockpile sales for the next one. They'd take longer breaks, call in sick, and generally distract their colleagues.

The 'Mercenaries'

The salespeople in the second persona behaved like mercenaries because they simply wanted to earn as much money as they could. Their sales were driven by a relentless desire to maximise their commission, but their methods were not always in the best interests of their customers, or the company. They'd burn through lots of data and always claim they needed more of it. Their focus was on the quantity rather than the quality of their customer interactions.

The 'Professionals'

I referred to the salespeople in the third persona as 'Professionals' - they wanted to do a great job for the Business, were always seeking to wow their customers, and expected to be fairly rewarded for their endeavours. They were unhappy that some of their colleagues in the other two personas were "getting away with murder" and "damaging the brand".

When I asked team managers why they tolerated this dysfunctional behaviour from the Lifestylers and Mercenaries, the reply was always the same:

"...because they're meeting their targets"

I decided that I needed to develop a commission scheme that would optimise performance across all three personas, create a meritocracy, and at the same time meet the needs of our stakeholders.

Everyone was in Tiers!

It occurred to me that I could achieve my objective by introducing tiered commission rates linked to individual rankings within peer groups. The top 25% in the month would be given the highest commission rate, followed by the next 25% who would be given the second highest commission rate and so on.

As Martin Fry and ABC sort of pointed out in their classic 80s hit, tiers are not enough, so I also introduced minimum thresholds before rates kicked in, and call quality 'hygiene' standards to ensure that there was no mis-selling. Performance was measured against conversion rates as well as total sales, thereby removing the temptation to burn through data.

Everyone could view their individual performance against their peers at any time throughout the month, so they knew exactly what quartile they were in and the commission rate they were currently in line to receive.

Fears for Tiers!

There are always concerns when launching a new commission scheme, but it soon became clear that it was having the desired impact. The peer group comparisons (rather than targets) were useful when discussing underperformance - we were able to remove any noise (excuses) from underperformers about seasonal trends, poor leads or competitive market conditions as their peers faced the same issues. Instead, we could focus on the real causes of variation in their performance and provide appropriate tools, coaching, and training.

The beauty of this scheme was that a salesperson's commission rate changed throughout the month based upon their peer group performance, so it incentivised everyone to keep selling until the end of the month.

The Lifestylers couldn't afford to put their feet up without the risk of earning less than their lifestyle target. Hard work, or the lack of it, was reflected in a rising, or falling, percentage.

The Mercenaries wanted to earn as much as they could, so they were determined to finish in the top quartile, but they had to sell responsibly. They started to channel their energy and desire positively - looking for ways to improve their product knowledge and sales technique.

The Professionals were delighted that everyone was being rewarded fairly, and no customers were being mis-sold.

Tiers of Joy!

The overall effect was a great working environment, a significant increase in sales and a better customer experience. Energy, commitment, and attendance levels were maintained throughout the month and there was a continual raising of the bar over the year. There was also some positive attrition - people who didn't like the idea of working hard every day and selling responsibly were replaced by people who did.

I've summarised the above points on a slide - I hope you find it helpful. Please use this link to view it on SlideShare.

Not all sales teams will suit this type of commission scheme - it works best in high-volume, low-ticket sales environments where you'd expect people to be converting leads every day. It does, however, illustrate the benefits of a tailor-made scheme that supports the needs of your people, customers, and business.

So, why not give it a go and see if it puts the wind in your sales!