Why Traditional Sales Incentives Are Broken
Sales incentives fit the classic mold of “how it’s always been done.”
Compensation plans look very similar across most sales organizations: a combination of base salary and variable pay where the variable portion is a reward for successful quota attainment. Sales reps work toward revenue quotas over set time periods (e.g. monthly, quarterly, annually) and receive their commission payments on a similar cadence. This is how it works in just about every sales organization on earth.
If the whole industry follows this approach, it must be a winning one, right? Wrong.
The sales incentives problem is a psychology problem at heart. In the traditional compensation approach, commission payments occur in the distant future, but real-time decisions and actions are happening today. Humans notoriously struggle with making decisions in service of future outcomes -- just look at people who want to lose weight. How often do you see someone state they’d like to get in shape but fail to make the right day-to-day decisions to produce that outcome? Traditional sales incentives create a similar delay between action and reward, resulting in suboptimal behaviors that negatively impact results:
- Poor prioritization: Sales reps tend to react to the customers that are loudest and have the most immediate needs. They focus too much on smaller, close-to-the-money deals and not enough on the large, far-off deals that may not close, but are highly valuable to the business when they do.
- Risk avoidance: Traditional sales compensation is all or nothing. The sales rep shoulders all of the risk when investing time and effort into a deal that may not close. If the deal is ultimately lost (for reasons that could be outside his or her control) or the rep leaves the company before the deal is closed, they get nothing even though great effort may have been invested. If you’re a sales rep, your incentives tell you to minimize risk and take the easier wins, even though spending time on bigger deals might be best for the overall business.
Traditional sales incentives also limit management of the business:
- Onboarding new reps: In a long sales cycle environment, new hires need time to build their pipeline and are often placed on a draw that guarantees their pay for their first few months. Removing performance-based pay creates a headwind on productivity. It can also be difficult during this time for sales leaders and managers to know how reps are performing.
- Driving strategic priorities: Traditional compensation plans are notoriously complex and hard to update. While generating revenue is an evergreen objective, strategic priorities (such as focusing on selling a particular product, or to a certain set of accounts) come and go. Quickly pivoting to reward unique objectives is difficult to do in a meaningful way with a standard revenue quota.
Fortunately, sales incentives can be fixed with smart restructuring and a little technology. SetSail’s true progress incentives bring rewards into real-time, while ensuring compensation is still paid out for real outcomes.
While rewarding progress is an obvious solution to the actions-to-rewards time delay, it’s historically been impractical to do in an objective way. Many teams track activities such as calls made or meetings held, but these inputs don’t necessarily equate to outcomes. Achieving milestones in a sales framework or moving a deal through stages are better measuring sticks, but are subjective and often self-reported. Tying rewards to activity or self-reported data can create a whole new set of bad sales behavior (often worse than the original problem).
Here’s where technology comes in. Advances in Machine Learning now make it possible for us to objectively measure true deal progress in real-time. SetSail’s incentives platform is powered by a machine learning engine that prioritizes signals such as customer sentiment over anything self-reported or activity-based. By leveraging a small SPIFF budget rather than involving the whole comp system, SetSail provides sales leaders with great flexibility to drive strategic priorities and adjust quickly based on learnings.
When a sales rep increases the likelihood of winning a deal (as measured by machine learning), he or she is rewarded right away. When you incentivize progress on your business’s highest priority objectives, rep behavior shifts accordingly. This consistent focus in the right areas creates maximum value for your organization. We’ve demonstrated 20%+ increases in revenue per rep in controlled A/B tests.
Open any psychology textbook and you’ll find the page that says “incentives drive behavior.” The SetSail take on that old adage is that the right incentives drive the right behavior, which drives revenue. Don’t leave money on the table by holding onto the way it’s always been done; unlock your team’s revenue potential by rewarding what matters today.