How to Evaluate Sales Compensation Plan Effectiveness

“But is it working?” It’s a question as old as time and one that THIS marketer has encountered throughout his entire career. Tracking and attribution models in marketing has come a long way, but as I always say, “It’s never JUST one thing that works, it’s a culmination of influence coupled with the sales process that says, “Yes, indeed it is working.” 

Sales comp is no different. There’s a lot of data going into it and being able to understand and visualize that data can help you pinpoint what works and what doesn’t in incentive comp. Which incentivized behaviors get the best result? And the answer, not unlike marketing attribution “Well, it depends, it’s never JUST one thing.” But visibility into these metrics is the first thing needed to evaluate results. 

Sales comp admins spend a lot of time and effort developing sales compensation plans to motivate sales, drive revenue, secure employee retention, and achieve business goals. But the work doesn’t end once a plan has been created.

The best admins pay close attention to how their plans are performing, continually gauging their effectiveness and making adjustments as necessary to ensure they’re achieving organizational objectives. It’s an ongoing process that comes in four stages:

1. Setting goals
2. Tracking performance
3. Evaluating performance
4. Making adjustments

We’ll take a look at each of these stages in turn.

1. Setting goals

In order to evaluate the effectiveness of a sales comp plan, you’ll need to start by clearly defining goals and how you’ll measure success. If you skip this stage, you’ll be relying on feelings and intuition to determine whether a plan is doing what it’s supposed to do. These goals should be defined in tandem with creating the plan itself, and the plan should be structured around achieving the goals.

Think of it this way. Your sales comp plan is not just a map, but a treasure map—it should provide an overview of the landscape and specifically mark the location(s) you need to reach. Without an X to mark the spot, your plan may allow sales reps to navigate the world of sales, but you (and they) will have no way of determining whether they actually hit their targets.

The goals you set should be based on individual metrics as well as group metrics, and quantitative metrics as well as qualitative metrics. Taken together, these form a matrix of metrics that allow you to track and evaluate performance:

We’ve explored these categories in depth in another article, but the basic idea is that quantitative metrics give you a look at the numbers-driven stats that objectively measure performance, while qualitative metrics refer to the equally important but less numerically definable qualities that affect sales reps’ ability to do their jobs well.

For quantitative metrics, you’ll need to determine and define KPIs for things like:

• Quota attainment
• Win rates
• Sales cycle length
• Sales growth rates
• Percentage of targets realized
• Sales revenue
• Conversion rates

And for qualitative metrics, you’re setting goals to evaluate things like:

• Growth
• Salesmanship
• Team morale
• Collaboration
• Job satisfaction

Of course the specific metrics you track and goals you set should be based on the particular needs of your organization.

And for all of this, be sure to set goals for individuals as well as the larger group. The group metrics let you see whether the sales comp plan is working on the whole. And the individual metrics help to ensure that no one is falling behind, identifying outliers in performance to differentiate between problems in the plan and problems with individual sales reps.

Put another way, if the majority of sales reps are on track toward meeting their individual goals, with just a few lagging behind, then that’s likely an area where the remedy is focusing on the individuals. They either need more intentional sales coaching to bring their performance up to what it should be, or they may simply not be a good fit. But if a more significant portion of the sales reps are all struggling to meet their goals, it’s an indication that something in the sales plan may need to be adjusted.

2. Tracking performance

Once you’ve defined your goals, you’ll need a way to track those metrics to determine whether you’re on course to reaching them. Ideally, you should have a single source of truth that integrates with all your systems to pull in sales data from various sources and present it all in a unified, cohesive, and easy-to-understand format.

One of the best ways to do this is with an Incentive Compensation Management (ICM) solution like Performio. It serves up your sales data with intuitive dashboards and insightful reports, giving you an at-a-glance overview of the big picture, while also providing deeper analysis for any specifics you may want to dig into.

While tracking performance, be sure to consider not only the long-term goals you’re working toward, but also the day-to-day stats that indicate whether you’re on track. You don’t want to wait until the end of a sales period to evaluate the effectiveness of your sales comp plan—by then it’s too late to do anything about it. So be sure your solution for tracking performance can provide real-time insights.

Additionally, that real-time window into progress should be made available not only to sales leaders, but also to sales reps. This allows them to evaluate their own progress toward goals and quotas, helping them keep up their performance and stay on target without needing to resort to “shadow accounting”—homebrewed calculations that waste time and often fail to track progress accurately.

3. Evaluating performance

There are a number of ways to evaluate performance and gauge the effectiveness of your sales comp plan. Here are some of the things to look for.

Overall progress toward goals

If you aren’t making appropriate progress toward reaching your goals, then that indicates a serious problem you need to address. And it’ll mean digging into more specific aspects of performance to determine the specific issue that is causing you to fall behind. But even if overall progress is on track, you can still find ways to further improve performance, enhance productivity, and increase revenue.

Bottlenecks

When overall performance isn’t what it should be, you need to identify the specific problem(s) that are holding the team back. This will often come down to bottlenecks in the sales process that delay progress in other stages. An analysis of your sales data should allow you to identify which portions of the sales process are going well, and where things are falling behind. From there, you can look into adjustments to overcome the bottlenecks and get things back on track.

Trends and outliers

Being able to identify trends and outliers is crucial for pinpointing specific areas for improvement. It could be that your team is heading in the right direction on the whole, but a few outlier sales reps are dragging performance down, requiring specific attention paid to those reps. Alternatively, the team could be trending poorly, but with a few outlier sales reps who are able to keep their performance up. It’s worth looking into what those reps are doing differently, or what factors are allowing them to succeed where others are struggling.

Feedback from leadership

Sometimes the raw numbers only present part of the story. To fill in the gaps with additional context, be sure to reach out to department heads and team leaders. They’ll be able to bring a different perspective based on what they’re actually seeing day to day. Talking with them can help you gain a fuller picture of the problems reps are facing so that you better understand how to address them.

Turnover

Sales rep retention provides important insights for understanding the effectiveness of your sales comp plan. On the one hand, no matter how effective your plan may have otherwise been, it will no longer be effective if there aren’t enough sales reps around to implement it. So if you’re losing too much talent, you’ll have to adjust your goals and expectations accordingly. And on the other hand, it’s crucial to understand why reps are leaving (which you can learn from exit interviews). Some may be leaving for personal reasons, but if they’re leaving because they didn’t feel their quotas were reasonable or attainable, that may indicate a problem you need to look into.

4. Making adjustments

Once you’ve evaluated the effectiveness of your sales comp plan, it’s time to make adjustments accordingly.

Sometimes it won’t be the plan itself that needs adjustments, but other factors, like additional sales coaching or training, better accommodations or equipment for sales reps, or simply the need to hire more people.

Other times a tweak in the sales comp plan is what you need to keep things on track. For example, you may be able to increase compensation for a particular sales activity that is falling behind in order to further motivate sales reps to complete it. Or perhaps you’ll find that some territories are facing unique challenges and need adjusted expectations to make up for it.

Or you may discover that your quotas simply aren’t attainable. This sometimes happens due to market conditions or other external factors that have changed from the time you created the plan. Regardless of the reason, you’ll need to adjust those quotes to ensure they remain reasonable, or risk burnout, poor morale, and even worse performance in the long run.

Whatever the specific changes may be, keeping track of your plan and making adjustments on the fly helps to ensure that you stay on track toward meeting your long-term goals.

Track and manage your sales comp plan with Performio

Dedicated ICM software is essential for properly creating, monitoring, evaluating, and adjusting sales comp plans, but ICM solutions are not all created equal. You not only need to analyze sales data to identify areas for improvement, but you must also be able to quickly make changes to your plan yourself—without having to wait weeks or even months for your ICM vendor to do it for you

Performio’s ICM software puts everything you need at your fingertips, including in-depth AI-powered sales analytics, intuitive dashboards, advanced reporting, and the ability to fully take charge of your sales comp plan.

Want to see what Performio can do for your organization? Request a demo today.