Elements Impacting Sales Compensation

Many sales-force consultants have models they use to describe the elements of a sales model. Based on my over twenty-five years of business experience, I have developed a sales model that contains the elements that impact both sales compensation and sales effectiveness.

Customer Segments and Profiles describes how customers and prospects can be characterized such as industry segment, annual sales, number of employees, buying patterns, potential, opportunity. The purpose is to understand slices of the market to determine insight where profit and opportunity exists.

The next element is Sales Channels to Market. Companies can deploy a direct sales-force or sell through distributors or both. Which is more profitable? If you have a direct sales-force, you can deploy outside reps or inside reps or national account managers or all of them. Once again, which channels are most profitable? And if you have segmented the market, companies can determine which channels should cover which segment.

Next, a Sales Playbook would include initial value propositions for each segment, for each channel and for each sales strategy. The definition of a sales strategy would be to acquire, retain or expand accounts. In addition, specific sales tools are used to execute the specific strategy.
The next element is the Sales Process. This documents the activities, generic roles and time allocation for each segment, channel and strategy. This would be the foundation for the next element which is Job Design and Hierarchy. Job Design would determine what type of roles you need to execute a sales process. Roles could be designed by segment, by channel, by sales strategy. Reps could be National, Key, Major, Territory, Inside, Outside or Indirect. roles are then placed into a hierarchy to determine whether the organization should be centralized or de-centralized.

The next element is Sales Deployment. Companies determine how many reps covering which accounts and which locations. And then management roles are layered on top depending on span of control.

The next element is Forecasting and Goal Setting. This is where the sales-force estimates upcoming revenue and is used as an input for the goal setting process. Depending on the goal setting cycle, goals are cascaded down from the top through the sales-force.
Finally, the last element is the Sales Dashboard. This is the reporting of results compared to budget.

What's important is that all of these elements can have an impact on the effectiveness of the sales compensation plan. The most elegant compensation plan could be derailed if one of the elements is sub-optimized. Given this background, what do you think is the #1 inhibitor to compensation optimization? In my opinion, Job Design is the #1 inhibitor. Oftentimes, I have had to redesign roles before I could start on compensation design. The takeaway here is to make sure that you assess all elements before starting compensation design.

Bob Malandruccolo is the founder and principal owner of Sales Force Effectiveness Consulting. With over twenty-five years of practical business, management and consulting experience in sales and marketing, Bob has worked with a broad range of clients from Fortune 100 corporations to small, closely-held firms with special emphasis on sales and marketing process implementation. He has worked closely with his clients through hundreds of successful engagements and implementations across multiple industries (manufacturing, engineering, distribution, software, healthcare insurance, medical products, healthcare, automotive, telecommunications, retail, information handling, media).
By Bob Malandruccolo