Your Compensation Plan Drives Sales Behaviors (A Note to the Sales Leader)

alt text of a carrot being dangled from a stickYou are not just disappointed with some of your sales results. You are not just frustrated with your sales results. Now you are downright angry about your sales force. Apparently, they just don’t get it.

They are discounting. They aren’t selling; they are simply taking orders. There is no “consultative” in their consultative selling, and the only negotiation they engage in is around price.

Maybe you are right; maybe it is all about them. And maybe their problem isn’t really their problem at all. Maybe they are acting completely rationally, behaving in a manner that is completely congruent with the way they are rewarded.

If You Would Not Have Them Sell Price

If you would not have your salespeople sell price, if it isn’t a competitive strategy that you have intentionally chosen, then you must not reward selling on price.

Compensating on top line revenue is a reasonable strategy when the price of what is being sold is fixed and when increased sales automatically equal increased profits. For most of us in B2B sales, this is not the case. For most of us, price is not fixed because what we do to create value is not fixed.

Where price is not fixed, and when the product or service you sell is complex enough that different solutions can create very different and varying amounts of value for different clients, your compensation plan has to be aligned with the behaviors that produce the greatest result for you and for your dream clients.

Where price is not fixed and a professional, consultative sales force can create value, your plan must reward that value creation and compensate and incent based upon the capture of your share of the value created.

If you want your sales force to behave as consultative salespeople, working with your dream client to create value that shifts the focus from price to a willingness to invest in something that generates a greater return on their investment, a compensation plan based on top line revenue won’t drive these behaviors; it will drive the opposite behaviors.

Why They Still Sell Price

A compensation plan that rewards top line revenue encourages sales at any cost. There is no reason to work to create greater value than your competitors if you are rewarded for doing otherwise.

Selling on cost instead of price is much, much more difficult. It is really two sales: first, you have to sell the idea that price isn’t what we are negotiating over (an unsophisticated but almost ubiquitous buying strategy is to negotiate on price alone), then you have to sell a solution that is based on a return on your client’s investment.

Selling the difference between the cost and the price isn’t easy.

Your salespeople struggle to shift the discussion from price to cost for a number of reasons. First, their client is accustomed to buying on price, and without some serious convincing, they stick to what they know how to do and what is comfortable for them. Second, the salesperson’s sales process isn’t likely to include the requisite steps, stages, and underlying philosophy to define how to successfully make the shift from price to cost. Third, most of your competitors frame everything in terms of price, continuing to drive the discussion back to the buyer’s preference for deciding on price alone.

There is no reason not to discount, not to sell price, and not to take orders, if you are rewarded for having done so. If your compensation plan rewards these behaviors, then your salespeople are behaving rationally and in their own interest.

To change their behaviors, you have to change their incentives.

If You Would Have Them Create and Capture Value, Reward It.

If you want your salespeople to create value by working to understand your dream client’s problems, their challenges, and their opportunities, and then to define the costs, then you have to design a process and a compensation plan that rewards that behavior.

If you want them to shift the focus from price to the return on the investment for helping overcome the problems, mitigate the challenges, and to capitalize on the opportunities, you have to design a process and a compensation plan that incents that behavior.

If competing and winning means moving from the apples to oranges pricing competition that you dread to a comparison based on a truly differentiated solution that focuses on the dream client’s end results and outcomes, you have to compensate based on these behaviors.

If you want margin, if you need margins to operate a business model that generates outcomes and results far greater than what your competitors can generate, then you have to build a process, a sales force, and a compensation plan that are aligned with these goals.

Questions

  1. Are you incenting the right behaviors for what you are trying to achieve?

  2. Is your compensation and commission structure aligned with your underlying sales philosophy?

  3. Is your sales process built around achieving the goals and outcomes that are part of your sales philosophy?

  4. Are your salespeople behaving irrationally? Is your frustration more the result of a compensation plan that rewards the very behaviors that are the source of your unhappiness?

  5. Have you trained and developed your sales force to truly take a consultative approach? Have you done all that is necessary to help your sales force achieve the results that you want from them?


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Comments

comments

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  • http://lookingtobusiness.com Daniel M. Wood

    Hi Anthony,

    This is one of the hardest parts of managing a team. Finding a way to reward the behaviours you want and discourage behaviours that aren’t in line with your strategy.

    To get both mixed into the same incentive program is tough, but required.

  • http://www.ilicostrategies.com Chuck Dietrich

    Anthony this is a great article that many company’s face every day. Price can be one of the last things prospective customers think about ONLY when they come through a trusted referral from an existing customer.

    Today too many sales reps and managers ignore the high level of prospects in front of them by NOT properly asking for referrals from the current customers who know, like and trust them.

    When someone is referred to a prospect the appointment is easier to get and price is usually not the number one factor. I highly recommend the book “Endless Referrals” by Bob Burg @bobburg. It will really help sales teams and managers move away from having to always deal with price as the # 1 issue.

  • Darren Russell

    Hi Anthony this is one of the great questions that faces all sales directors, however the problems you face is hierarchy indifference; this is when people become separated from the market by their role and loss touch with what clients want and need. What their staff requires to achieve the company goals and aspirations.
    I am a BDM with 26 yrs in the field; I love the role and practice consultative selling as a personal choice. In doing so aloud last year I wrote over £1.4 million for my company.
    if it is possible not to go along the price route I don’t, but that is determined during the consultative process. So to say that salespeople don’t follow the consultative process is a swiping statement made by someone who may be by the sounds of it suffering from hierarchy indifference.
    What I suggest is get out their do some business, start by cold calling follow the process that your staff do, and do it at lest twice a year to keep your feet on the ground. To understand what your staff need and what your clients need and what is driving the market you work in. this is the way to understand what will motivate your staff and help increases your sales and the profitability that you are looking for.

  • http://www.gettingbeyondcoldcalling.com Trish

    Hi Anthony!
    Thanks for the great post! I completely agree with you here. I have been in sales for almost 20 years and the comp plans are always the most confusing since they never seem to be in line with company goals. Even worse, when I was in the copier biz, the Sales managers were paid completely differently than the sales reps so our goals were always out of line.
    The managers always seems to make more on the top line while the sales reps make more on GP. That put us in a place where we were pressured to lower our prices at the end of the month so the manager could make HIS numbers while all we did was lose pay and devalue ourselves and our products.
    This is great stuff! I look forward to reading more!
    Trish

  • http://www.propelisconsulting.com Mthacker

    Anthony:

    I enjoyed your article. Salespeople will figure out how to exploit a plan to make the most amount of money. It is up to us to incent the behavior we are looking for. Good insights. If you are interested I included a link on what I believe are 5 Keys to a Successful Compensation Plan

    http://propelisconsulting.com/wp-content/uploads/2011/01/5-Keys-to-a-Successful-Sales-Compensation-Plan.pdf

    Mark

  • http://www.peaksalesrecruiting.com EliotBurdett

    Great post Anthony. I might add, that wince most companies commission on top line (right or wrong) and your company wants to move in a different direction, it will take time for the reps to adjust. Give them the time and don’t let the CFO change the comp plan each year.
    Eliot Burdett
    peaksalesrecruiting.com

  • http://www.oneclickcommissions.com/sales-compensation.html Sales Compensation

    Since February I have been advising my clients to review their comp plans and see where they can increase non-cash incentives. This tends to build have an interesting synergy in the comp plan.

    -Patti

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