The power of Sales Compensation: how incentives drive results

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Let’s face it – Salespeople are often driven by money. At least, that's the common assumption. But there’s more to it than just the paycheck. Sales reps are motivated by a variety of factors - many of which are often overlooked or unexplored. While monetary compensation is certainly a key driver, it's far from the only one. The stereotypical view that money is the sole motivator is too simplistic. In reality, every salesperson has their own unique reasons for working in sales, with money being just one piece of the puzzle.

Today, we’ll dive into the diverse compensation schemes in B2B sales and how they influence sales behavior. Understanding these plans is crucial for aligning your sales strategy with your business goals and driving the right outcomes. Let’s take a closer look at different compensation models and why they matter.

Why tackle this topic?
There are two main reasons why this is important - one for your sales Reps and one for your company’s success.

First, incentives drive behavior.

As Charlie Munger once said, “Show me the incentive, and I’ll show you the outcome.” This holds true in sales. How you incentivize your team will directly influence their actions. For example, if your compensation plan is solely focused on new business acquisition, don’t expect your Reps to prioritize nurturing existing customer relationships or account management. That requires a different skill set and motivation. Understanding compensation models also helps ensure that your plan attracts the right individuals who will fit well within your organization's culture.

Second, there are multiple roles in sales, each with different realities.

Recognizing that not all sales roles are the same gives you valuable insight into how to design compensation plans that motivate each role effectively - and ideally, attract and retain the right talent. Whether it's an account manager or a business development representative, understanding the specific nuances of each role and how they contribute to the business is essential for success

Gartner’s Sales Compensation Insights

Gartner surveyed 145 B2B sales organizations and compiled their findings into a report titled “Benchmark Your Sales Compensation Strategy for Success.” The survey sheds light on common compensation structures used across industries. Let’s break down the different plans and explore how they align with specific sales roles.

Note: There is no definition of each role in the Gartner document. I’ve provided a description for some of them here with some personal notes and insights. I believe it captures the essence of each role.

The different compensation plans

These compensation plans can either be tied to a fixed salary or be entirely incentive-based, depending on the organization and the type of sales environment.

Credit: Gartner Benchmark Your Sales Compensation Strategy for Success

1. Quota or Target Plan (QU)
   Sales reps are assigned a monetary target (e.g., revenue or net margin). If they reach 100% of their target, they earn 100% of their incentive. If they hit 80%, they may earn 80% of the incentive payout—or potentially nothing—depending on the plan’s structure. This plan can get more complex with multipliers or thresholds that reward overachievement.

2. Commission Plan (CO)
   This is straightforward: reps earn a percentage of everything they sell. It’s performance-based and efficient, but can be brutal. High-performing "hunters" often prefer this plan because their earnings are directly tied to sales.

3. Hybrid Plan (QC)
   A blend of both quota/target and commission models, hybrid plans offer flexibility. This approach works well for reps who manage ongoing relationships, such as account managers, where incentives are needed to balance both new business acquisition and customer retention.

4. Objectives Plan (MB)
   This plan is tied to non-monetary objectives, such as acquiring new logos or meeting customer satisfaction targets. These goals are often harder to measure but are important for businesses focused on long-term growth and strategic goals.

5. Roll-Up (RU)
   Compensation is based on the aggregated performance of others, such as teammates or a team under management. This can be a great model for managers who lead sales teams and need to ensure collective performance.

For newcomers in the world of sales, be aware that your compensation scheme gives you a clear indication of the "nature" of your job and what’s expected from you. When you look for a role or go through an interview, be sure to ask and understand how and why you will be paid. If there’s a discrepancy between the role description and how you’ll be compensated, remember: “Show me the incentive, and I’ll show you the outcome.”

Which plan for which role?

Credit: Gartner

While different compensation plans serve different roles, one thing is clear: "Show me the incentive, and I’ll show you the outcome." This quote underscores how essential it is to align compensation with desired outcomes.

• Commission Plan (CO)

  Surprisingly, this plan isn’t always the most popular—even among “hunters.” Many organizations prefer a more balanced approach that offers some security, such as a quota or hybrid plan.

• Quota/Target Plan (QU)

  This is the most popular plan across roles. It reflects the growing complexity of sales jobs, where reps are expected to be versatile and adaptable. The idea of hitting a target, with potential rewards for overachievement, aligns well with today’s sales environment.

• Hybrid Plan (QC)

  Particularly popular for account managers, the hybrid plan helps ensure a 360-degree view of the customer. By incentivizing both acquisition and retention, it aligns with goals like maximizing Customer Lifetime Value (CLV) and minimizing churn.

Non-monetary incentives: motivating beyond money

While money is often the primary motivator for sales teams, non-monetary incentives can also be highly effective (and often forgotten). Sales Reps are people too, and their motivations go beyond just the paycheck. Not mentioned in the Gartner report, here are a few non-monetary incentives that can be part of your strategy:

• Recognition and praise

  Acknowledging achievements, whether it's hitting a milestone or maintaining strong client relationships, can go a long way in motivating a Rep.

• Career Development

  Offering opportunities for training, mentorship, or advancement can provide motivation beyond commissions. Salespeople who feel they’re growing in their careers may be more engaged and productive.

• Work-life balance

  Providing flexible hours or remote work options can be a valuable incentive for salespeople who seek a better work-life balance. This can improve retention and overall job satisfaction.

• Team celebrations or perks

  Offering team-building activities or exclusive perks for top performers can strengthen morale and foster camaraderie, driving long-term success.

Actionable Takeaways

If you're evaluating or designing a compensation plan for your sales team, keep these tips in mind:

• Know your objectives

  Design your compensation plan to align with your specific goals - whether that's new business acquisition or account management. Be clear about these objectives to attract the right talent and motivated individuals. Additionally, understand whether your Reps are driven by financial rewards, career growth, or recognition. Ensure the baseline compensation is solid and competitive.

• Think long-term

  Compensation plans that focus on customer retention and account growth often lead to more sustainable success. For account managers, consider hybrid models that balance both acquisition and retention to ensure long-term results.

• Regularly evaluate

  Your compensation plan should evolve as your sales strategy and team needs change. Periodically assess its effectiveness and make adjustments to ensure alignment with both short-term goals and long-term success.

Conclusion: choose your incentives wisely

Incentives - monetary or otherwise - are powerful tools that drive sales behaviors. The key is aligning the right compensation plan with both your business goals and your team’s needs (if you want to retain them). Before setting expectations, take a moment to evaluate your compensation strategy: does it incentivize the behaviors that will lead to the right outcomes for your company?

By choosing your incentives carefully, you can position your team - and your business- for long-term success.