Sales commission: 7 mistakes to avoid!

Are your sales reps no longer motivated by the commissions you offer them? Are they no longer achieving the targets you set for them? Do you suspect that some of them are looking at what the competition can offer them? 

"There's no mystery about it, a good variable pay plan drastically impacts retention, motivation and performance."

Vladimir Ionesco, Director of Global Sales Performance at Doctolib

Indeed, to face the situation, the first action to take is to analyze your current variable pay policy. According to a Primeum, commentremunerer.com and MeteoJob study, 88% of respondents think that the variable pay system should be improved.

To begin with, it is essential to ensure that it does not include one or more of the major mistakes common to variable pay systems!

What are they?

In this article, the experts at Qobra introduce them to you!

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1. Setting unclear and confusing objectives

By definition, all sales commissions, regardless of the role of the member of the sales organization, are based on the objectives set up front. Thus, a variable pay policy is only a development and motivation tool if the associated objectives are simple, clear and precise!

"On the selection of indicators to determine variable pay, you really have to focus on simplicity and clarity. Otherwise, the employee doesn't know what to focus on to achieve his objectives."

Aude Cadiot, Revenue Operations Lead at Spendesk

The method

The SMART method is the simplest and most effective way to set such goals. It is well known and has already proved its worth many times over! In this case, it allows you to simply align with business objectives while keeping the reality of the field in mind.

Secondly, it is important to link these objectives with the right key performance metrics (KPIs). These are the metrics that salespeople will monitor to track their performance over a given period. This will allow them to better project the potential amount of their variable pay.

Once the objectives have been defined, it is important to ensure that they are understood by everyone. To do this, they need to be explained in an educational way and each member of the sales team needs to understand the purpose of each of their objectives, including how they serve the company's overall strategy.

This should be done individually when each new recruit arrives, but also on a more regular basis during team meetings (e.g. quarterly meeting, team seminars, achievement and objectives reviews, etc.).

💡 Good practice: 

During the review of objectives, it may be useful to take a moment individually and/or collectively with the members of the sales team. This is an opportunity to co-construct future sales objectives with them and ensure that they are in line with the reality on the ground.

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2. Building variable compensation for all salespeople on the same metrics basis

Depending on their role in the sales organisation, employees should have a different sales commission model. Indeed, it is unthinkable to pay a pure "hunter" the same amount as a sales person in charge of processing leads!

Here are some best practices for building a commission model tailored to each role in the sales team: 

• Account Executives (AEs): In charge of closing deals, they should not be paid according to the number of meetings they book, or the way they fill in the CRM, but according to the turnover they produce.
• Sales Development Representatives (SDRs): Their mission is to generate qualified leads for the AEs, so their variable remuneration must be based on both the quality of the leads they process and the potential turnover generated. In order to ensure the quality of the leads and maximize their motivation, it is important to find the right balance between the variable remuneration associated with the number of qualified leads and that linked to the turnover generated.
• Marketing Development Representatives (MDRs): In charge of generating leads through marketing actions, they have no direct control over their volume or quality. However, they can have an impact on the speed of lead qualification and on the quality of the qualification process. Their variable compensation should therefore be based on these two criteria.

🚀 Going further: 

Discover our guide to building a good commercial remuneration policy !

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3. Neglecting variable pay for Customer Success Managers

Customer Success Managers (CSM) are key players in the business development of a company!

Of course, their role is not to sign up new customers, but it is just as important to retain existing ones. 

There is therefore a strong interest in building a variable pay policy that encourages them to :

• Renewing contracts with existing customers
• Make additional (up-selling) and/or complementary (cross-selling) sales

💡 Good practice:

Basing the variable remuneration of CSMs on these two metrics can lead them to play two roles for their customers. To avoid the customer feeling that they have two salespeople in front of them, it is wiser to dedicate a specific AE to up-sell and cross-sell, or to create a CSM/AE duo dedicated to this type of contract renewal.

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4. Not taking into account the frequency of commissions

Depending on their role in the organization, salespeople do not live on the same timeline. Some are faced with assignments that end quickly, while others maintain a relationship with customers for several months. 

To ensure that salespeople are fairly compensated, the sales commission policy must take this difference in timing into account. It is therefore essential to define the frequency of targets set, as well as the frequency at which salespeople receive their commissions.

Here are some good practices in this area:

• Monthly targets and commissions. They are suitable for Sales Development Roles (SDR) and Account Executives with a sales cycle of less than one month.
• Quarterly targets and commissions. They are appropriate for sales people who are in charge of contract renewals, and those who make additional and/or complementary sales. This way, they focus on their contracts at the moment.
• Quarterly targets and monthly commissions. They are suitable for motivating Account Executives who manage sales cycles between 1 and 9 months.
• Annual targets and monthly commissions. They help to keep salespeople motivated with long sales cycles (9 months and more).

📌 Please note:

It is important to adapt these rules to the company (sector of activity, maturity, sales cycle) and to its commercial organization. 

Through a study dedicated to commissions in France, Qobra and Modjo have analyzed the frequency with which companies pay their employees (Sales, SDR/BDR, CSM/AM) and the impact on their performance:

• 40.8% of employees who receive their commissions monthly exceed their targets, compared with 28.2% (quarterly), 27.6% (half-yearly) and 30.4% (annual).

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5. Not saving some budget for exceptional business performance

Congratulating sales team members who exceed their targets is essential. And to mark the outstanding nature of their performance, what better way than to offer them exceptional bonuses!

It is therefore necessary to align with the financial pole to determine a specific annual budget for these exceptional commissions.

🚀 Going further:

Find out how to reward outstanding sales performance with commission accelerators !

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6. Not basing commissions on the length of the sales cycle

Offering sales commissions in line with the reality of the field experienced by sales teams means ensuring that the variable remuneration policy is aligned with the length of the sales cycle they face.

The objective is therefore to find the right balance between fixed and variable remuneration according to this sales cycle. 

The indispensable rule in this respect is to apply a proportionally higher fixed remuneration according to the length of the sales cycle.

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7. Managing commissions in Excel

Many sales managers, SalesOps or Finance departments manage commissions on an Excel or Google spreadsheet. However, they are aware of how difficult it is to manage the topic with such tools!

"Excel involves formulas that are sometimes broken, calculations that are sometimes unclear since Sales reps don’t necessarily understand them and, above all, UX is not as obvious as Qobra."

Clément Bouillaud, Director of Operations at Partoo.

Indeed, manually entering information is complex, the risk of errors is high, and there are many reasons for this.

Output?

The teams in charge of commissions lose a considerable amount of time, which drastically impacts the motivation of sales staff. 

In addition, employees have no real-time visibility of their performance, so they have no way of implementing actions to improve their sales performance.

As proof of this, 61.9% of employees using commission calculation and management software exceeded their targets, compared with just 30.1% of those using Excel or Google Sheets. (Qobra & Modjo study on variable commissions in France)

To meet sales teams' expectations and turn these negative impacts into real opportunities, all you need is sales commission management software like Qobra!

Linked directly to the CRM, it allows the automatic retrieval of information related to the performance of any sales rep… In concrete terms, once the commission plan(s) have been integrated into the tool, it automatically calculates the commissions for each salesperson. They can then access it to see their commissions in real time and implement actions to achieve their objectives!

"With Qobra, I have real time visibility on my closed-won forecast, it gives me motivation to go out there and get more deals and to keep performing."

Matthieu Saroli, Enterprise Account Executive at Didomi.