How to build fair inside sales compensation plan? QUICK CASE: There once was a salesperson tasked with selling government contracts. Too typical of the government, they capped the salesperson’s commission. You see, the government did not want too many contracts, or it would have to hire more people. What a terrible thing is that!?
Business cannot work that way. And, allowing for the fact that every business differs, there is no good business reason to cap your inside sales commission compensation plan. As you structure your inside sales compensation plan, consider the negative effects of capping commissions. Any attempt to avoid “runaway” commissions will first reduce revenue.
Reduced revenue will sequentially:
- Reduce cash flow
- Crunch operating income
- Lower business valuation
- Limit available resources
Why cap commissions?
It is hard to say. Admittedly, it may be difficult to structure an inside sales compensation plan. It is no place for amateurs, and compensation issues present dangerous waters for new businesses to navigate.
Bad planning proceeds from fear, uncertainty, and business naiveté. Inadequate business planning fears that unlimited commissions will sour profitability and feed a rumor mill about unearned super wages. Poor planning lacks certainty about product lines, markets, quotas, territories, incentives, and accelerators.
The inside sales compensation plan’s commission caps do aid budgeting and forecasting, but a good structure can anticipate fluctuations that inform the business operations and management more fully.
In the mind of employers, labor earns compensation. In the minds of workers, compensation provokes response. It is a law of self-interest and economics. When you manage the compensation, you manage the labor response. Reps need fair inside sales compensation plan, straight from A to Z.
- Capped sales reps will sandbag productivity and manipulate sales into rewarding channels.
- “Rainmakers,” the high-potential talent, will leave or seek positions without caps, leaving behind the middle producers because your compensation plan rewards the middle.
So, unless the business wants, for some unfathomably reason, to shortstop revenue at the end of a month, quarter, or year, it will not encourage inside sales reps to game the system.
What to fix ? Build effective inside sales compensation plan
If fear, uncertainty, and business naiveté underlie your business operations, you have a problem bigger than your inside sales operation.
- Fear is a legitimate motive but cripples when unmanaged. Fear is a stress you can manage with information, education, and advice. When entering business, you need a cushion where emotion and energy can balance. As a business owner, you are a risk taker, so you must build risk into operation, budget, and planning.
- Uncertainty follows from and adds to fear. Uncertainty is of your own making, and if your lack confidence in sales targets and parameters, you must retrench and start from scratch. If you need employee sacrifice, you must start at home. Your income is a function of your inside sales reps.
- Business naiveté is a risk you cannot abide. Facts, figures, and professional input will ground you. But, you need to study inside sales compensation plans and how they work.
Now, that advice on building your inside sales compensation plan should recognize your business sector, and it should evolve over time as your new business inside sales function grows. But, whatever base salary, target incentives, and periodic accelerators you structure, you do not want to cap commissions.
Image courtesy of bplanet / FreeDigitalPhotos.net