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Solving the challenges of sales compensation design

By November 6, 2013June 11th, 2024No Comments

Incentive compensation has the power to boost productivity when employees feel like their work is valued and justly rewarded. Solutions that help determine fair compensation, such as sales compensation software, are instrumental in helping companies measure targets or quotas and acknowledge their top-performing workers. However, when deciding to change or begin sales compensation planning, managers might not know where to start. Here are common questions asked by managers when designing compensation plans: 1. How do I begin updating old compensation plans? Managers often want to revise old plans to complement the company’s new marketing strategies. Before overhauling compensation plans, separate sellers into groups that appeal to specific type of customers, whether by the products they tend to purchase or their demographic region. This will help companies organize their compensation structure because each category of seller has a different sales compensation plan. 2. How do I structure this sales compensation design? In their compensation planning, companies are more likely to use the sales representative model as sellers aim to meet specific company objectives while interacting with customers. Another option is the income producer model, which involves a flat commission starting with the first dollar but does not actually change with different sales outcomes. 3. How many metrics should I measure when designing compensation plans? When starting compensation planning for the sales representative model, begin by thinking about the details of the sales job and how to define the functions of this position. Focus on the most pertinent metrics to measure the outcomes of the job for the compensation plan in order to avoid the problem of competing goals. 4. How do I determine pay and other compensation? After gathering market data, determine the entire dollar amount that will be given for compensation plans. Divide this total into base pay and target incentive. This could be split right down the middle or have a 60/40 to 70/30 pay mix. The ratio should reflect the importance of the sales person in influencing customer purchasing behavior. 5. How do I measure performance goals and expectations? To pinpoint star performers, managers can begin by selecting leverage, or the multiple of target incentive. If a salesperson meets 3x their target incentive, they are in the 90th percentile of their sales group. This is a way to see if employees are barely meeting the cut in the 10th percentile, doing mediocre to adequate work in the 50th percentile or outperforming and exceeding performance expectations. Effective communication helps solve business problems Once companies are on their way to building a successful sales compensation plan, they also face the common challenge of articulating their company’s business vision to maintain top sales performance. Communication is integral in solving business problems, Business & Legal Resources said. David Grossman, author of “You Can’t Not Communicate: Proven Communication Solutions that Power the Fortune 100,” said leaders often make the mistake of thinking communication is a skill that may not be important for achieving individual and team goals. He said many business leaders do not advance simply because of their communication skills. “They were promoted because they are individual contributors who achieved business results,” Gross said. “Communication is very much a learned skill.” To solve this challenge of communicating effectively, managers need to discuss expectations with employees early so they know how they should perform. As bosses may have different communication styles, they need to be able to adapt to situations in order to convey information depending on the matter at hand. Managers could utilize a dashboard to review performance data and enables transparency and communication across all departments. Instead of struggling with sales compensation management, companies that are in tune with the jobs of their sales people and communicate their expectations clearly will be on their way toward business success.

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Ballast Point Ventures

Ballast Point Ventures is a later-stage venture capital fund established to provide expansion capital for rapidly growing, privately owned companies in diverse industries, with a particular emphasis on companies located in Florida, the Southeast, and Texas. The BPV partners have more than 70 years of combined experience investing in and building high-growth companies in a number of industries, including healthcare, business services, communications, technology, financial services, and consumer goods. BPV has $200 million under management and seeks to make equity investments ranging from $3 million to $10 million.

Harbert Management Corporation

Harbert Management Corporation seeks to generate superior returns for their investors by identifying and investing in the most promising early growth stage companies in the Southeastern U.S. HMC seeks to capitalize on what it believes are compelling regional dynamics, such as a strong and fast-growing economy, significant research and development activities, and an established entrepreneurial community. The HMC team combines substantial investment, advisory, and operating experience with capital and networking contacts to support great entrepreneurial teams in successfully executing their growth plans. With offices in Birmingham, Alabama; Richmond, Virginia; and Gainesville, Florida, it’s well positioned to partner with entrepreneurs throughout the Southeast.

KBH Ventures

KBH Ventures was an early investor in Iconixx Software. KBH's investment philosophy plays a significant role in the firm's successful track record. KBH believes in running businesses to be cashflow positive and profitable every month. Startups and companies in a startup mode, such as one that has been purchased in distress, are expected to generate revenue within the first six months and reach profitability within the first 12 to 18 months. KBH also only invests in or acquires companies that are in the startup phase or have less than $20 million in revenues. KBH targets technology companies that offer business-to-business services.

S3 Ventures

S3 Ventures is an early expansion and growth stage venture firm with $200 million under management. It’s focused on information technology solutions that solve large business problems. S3 also invests in medical devices that improve the human condition. S3 invests in category-defining opportunities. It partners with the team and help focus methodically on what it takes to build a successful company. S3 today helps talented entrepreneurs take their technology and market knowledge and form valuable businesses in a repeatable fashion. Investment sizes start at several million or more for Series A, B, and C financing.