I used to work in the dairy industry as a marketer and from that know more than my fair share about dairy. Good cultures = tasty yogurt…Bad cultures = rotten yogurt. Okay, maybe that was just a cheesy 🧀😁😆, dad joke, but, there’s a solid metaphor in there. We’ve been talking a lot about values lately and with intention. Good company values that are fully embraced are not only good for morale, but if they’re truly lived in an organization, they drive performance and ultimately, this drives revenue.
Every sales employee should feel they’re treated equitably and given equal opportunities for earnings and advancement. This is especially true in sales, where commissions make up a significant portion of an employee’s income.
When how much you sell affects how much you make, sales reps should all be able to determine their own income based on the amount of work they put into making sales. Greater effort should equal greater rewards, with relatively equal opportunity afforded to all reps, regardless of where they’re located in your team structure.
The problem is that different sales teams, depending on how they’re structured, may need to work harder to generate the same amount of revenue. In order to run an equitable sales department, your sales compensation plan has to take all this into account, adjusting for these differences to give everyone the opportunity to succeed.
If your compensation plan is poorly structured, some sales reps will have inherently greater earning potential than others, and this can lead to poor morale, a lack of team spirit, and suffering performance. In the worst scenarios, some of your best veteran sales staff will have lower caps and fewer opportunities than some of your worst and least experienced reps.
Problems with sales comp equity across different sales structures
Most organizations structure their sales departments according to at least one of four external factors which can determine the revenue potential of each team:
- Geography/territory
- Product/service line
- Industry/vertical
- Account size
For each of these team structures, we’ll take a look at specific aspects that can cause compensation to be inequitable, and then we’ll consider what you can do about it.
Geography/territory
If you group your sales teams according to their location or territory, the region a rep serves can have a significant impact on their commissions.
Territories with larger or more mature markets will often come with higher revenue potential than smaller or emerging markets, meaning that sales reps in the smaller territories will have an automatic disadvantage. And some territories are likely to face more intense competition than others.
Additionally, regional differences may affect a given territory’s overall receptiveness to your product or service, making it harder to sell in some areas. And local economic conditions may impact the spending ability of potential customers found in a territory.
On top of that, cost of living may differ substantially from one location to another, meaning that sales reps living in one area will need to earn more than those living in another area in order to maintain the same standard of living.
Product/service line
Sales teams structured by product or service lines can focus on their particular offering, allowing them to develop a greater level of expertise and provide customers with a better experience. However, the different lines will frequently come with a different selling experience.
To sell products with greater complexity, reps may need more in-depth and technical knowledge, requiring extensive training and ongoing support, all of which is extra work these reps should be compensated for. Additionally, the sales cycle may be longer from one product to the next, which will impact how many sales a rep is able to close in the same period of time.
Profit margins and price points also vary across product lines, which may result in higher payouts for some teams than others, even if they’re working equally hard and effectively.
Industry/vertical
Grouping sales teams according to the kinds of customers they’re targeting allows them to focus their pitch for a given customer’s use case, which creates some of the same compensation challenges as product or territory-based structures.
For example, you’ll face similar issues based on the sales cycle length, the complexity of products within a vertical, and profit margins. And as was also the case across territories, market demand and competition levels may vary across industries.
But you’ll also have to contend with different industry growth rates, as high-growth industries usually offer more sales opportunities and higher earnings potential than mature industries with slower growth rates.
Additionally, different industries may come with vastly different regulatory and compliance requirements, particularly in highly regulated industries such as healthcare or finance. This adds additional complexity that sales reps within these industries will have to account for.
Account size
Sales teams structured by account size allow organizations to provide special attention to bigger enterprise accounts, ensuring they maintain a good relationship with these crucial customers, while having other teams devoted to smaller accounts.
The larger accounts will certainly generate more revenue than smaller accounts, and they frequently operate on a longer sales cycle and may involve more complex negotiations. The relationships between customers and sales reps tend to be different for enterprise accounts, requiring more ongoing relationship management, customer service, and strategic planning.
Additionally, it’s natural for organizations to allocate more resources to enterprise accounts, but you still have to take care not to neglect the needs of sales reps working on smaller accounts.
How to ensure sales comp equity regardless of structure
The most important way to ensure equity in sales compensation across your teams, regardless of which structure you use, is by being willing to cater your sales comp plan specifically to different teams as needed. A one-size-fits all approach simply won’t cut it when dealing with different territories, product lines, industries, and/or account sizes.
Specific actions you may need to take include:
- Tailoring your quotas to the specific characteristics of each team. Use historical data, benchmarks, and market analysis to establish realistic and achievable targets.
- Developing incentive structures that account for the unique challenges and opportunities of different territories, products, industries, and account sizes. Ensure that both deal size and frequency are fairly rewarded.
- Adjusting compensation based on product lifecycle stages and the complexity of sales processes in different industries and account sizes. Recognize the added effort and expertise required for complex products and long sales cycles.
- Using a balanced mix of base salary, performance bonuses, and special incentives tailored to different segments. Ensure that compensation plans are flexible enough to adapt to the unique needs of each geography, product line, industry, and account size.
- Adjusting compensation packages to reflect regional cost of living differences, market demand variability, and economic conditions. Incorporate economic adjustment clauses to maintain fairness during market fluctuations.
Additionally, it will be important to conduct regular performance reviews and equity audits to identify and address disparities in compensation. Regularly request feedback from sales reps about the fairness of their compensation and the specific challenges they face. And then incorporate their feedback into the adjustments and improvements you make to sales compensation plans.
Easily manage complex sales comp plans with Performio
Ensuring equity across your sales teams can make for some complex sales comp plans, which means you’ll need Incentive Compensation Management (ICM) software that’s up to the task!
Performio’s component-based solution sets us apart from other ICM systems. With our platform, you’ll have the flexibility to handle any level of complexity. And you’ll have the support of our world-class experts walking alongside you to ensure your organization’s ICM success.
We love helping businesses reduce the pain of calculating and managing sales commissions, freeing them to spend more time growing and serving their customers. And we’d love to do the same for you!
Ready to see what Performio can do for your organization? Request a demo today.