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Guest: Chris Larkins, a seasoned executive with 20 years’ experience boosting performance at both established and distressed companies. Prior to joining CEO Coaching International, Chris served as the COO of a major AT&T authorized retail chain with more than 500 stores nationwide. Chris instituted aggressive changes that turned around failing stores, and increased gross margins across all locations. In less than three years, the team Chris built successfully integrated and supported 300 new stores.
Episode in a Tweet: Align your sales comp with your goals to keep your sales team, and your company, focused on BIG things.
Quick Background: If you want to grow your business, you don’t need salespeople. You need THE BEST salespeople, a top-notch team that’s constantly moving your product or service, making a great impression on your current customers, and spreading the good word about your company whenever possible.
So, step one: load up your sales team with grade-A talent.
On today’s show, Chris explains the importance of step two: ditch your flat-rate commission structure, and align your sales comp with the BIG goals all those sales should be building towards.
Transcript: Download the full transcript here.
Key Insights on How to Align Your Sales Comp With Your BIG Goals
1. You need a “why” for your sales too.
Ask a struggling CEO what he or she wants, and “More sales” is a pretty common answer. Ask that same CEO WHY he or she wants more sales, and you’d be amazed how many blank looks you’ll get.
“Typically, you increase sales because you want to boost profits, maybe pick up a little bit of market share,” says Chris. “Maybe you’re introducing new products and you want to ensure you sales team is focused on them. In other words, there are typically other very important objectives.”
It’s crucial to growing your business that those objectives be forward-thinking, vision-enhancing objectives. You don’t want to align your sales comp to hitting last year’s number again, you want to point your sales, your team, and your whole company, towards your ultimate vision of success.
2. “Your salespeople are going to do exactly what you compensate them to do.”
And therein lies the danger of one-size-fits-all comp systems. Chris warns, “If you compensate your salespeople with one plan, you’re allowing your salespeople to determine what they want to sell in order to get paid rather than coming up with something that allows them to understand more clearly the specific products or specific types of sales you would like them to pursue.”
In other words, if you don’t align your sales comp with your goals, you sales team will align it with their own goal: getting paid.
3. Make a 50/50 split.
Once you’ve determined what your salespeople are pushing, and why, you need to make sure your sales comp offers high achievers a solid base of income, with incentives that will motivate them to go above and beyond their monthly targets.
“I think a good target compensation for a salesperson is somewhere in the range of a 50% salary, and 50% commission,” says Chris, “with the ability for that commission component to be much more than 50% of their salary if they check all the boxes that you want them to check.”
Be on the lookout for prospective hires who embrace the challenge set in your comp. “If someone is saying, ‘Look, I am confident that I can blow away your sales target, and I would like to consider being able to earn more when I do so,’ you should pay particular attention to that candidate,” advises Chris.
4. Boosting EBIT.
Many companies set a leading goal of boosting their earnings before interest and taxes, but they fail to align their sales comp to that goal. “The disconnect that a lot of companies will make here is that they will still have a straight commission percentage,” says Chris. “But in most businesses, the highest-priced item you sell is not necessarily your most profitable item.”
Unfortunately, even your best salesperson isn’t going to care about your bottom line. They’re going to take the path of least resistance to making sales and getting paid … Unless you align your sales comp to your most profitable items. Give your sales people an incentive to sell what’s best for you, not what’s best for them.
5. Throw your catalog in a bucket.
Worried that if you align your sales comp to varying percentages, you’ll confuse your sales team? Don’t be. “The right salespeople, the good salespeople are experts at figuring out how they will get paid the most,” says Chris. “Adding a little bit of complexity to a compensation plan, provided it points in the direction of your goal, is certainly justifiable.” If you do want to keep things as simple as possible, break down your catalog into buckets – A, B, C – and assign a commission percentage to each that prioritizes your most-profitable “A” bucket.
6. More growth requires more customers.
Your salespeople might be content selling to the same customers over and over again. You shouldn’t be. But, unfortunately, “It’s my experience that many salespeople are simply uncomfortable with business development,” says Chris. “They prefer maintaining existing clients, frankly, because it’s the easiest thing for them to do.”
Increasing market share is another goal hamstrung by flat compensation. Instead, align your sales comp to growing your customer base and pay a higher percentage to new business. And if you have the resources, consider moving existing clients to your account service team. That will get your salespeople back outside, pounding the pavement.
1. Flat compensation only benefits flat salespeople. You want a motivated team working to grow your business towards something BIG.
2. “Salespeople are like rivers …” they take the path of least resistance. If you don’t align your sales comp to a big goal, your salespeople will sell what’s best for them, not what’s best for you.
3. Fill up your “A” bucket. If your sales comp places more value on moving the most-profitable products and bringing in new business, your salespeople will prioritize those leading activities too.