To be fair, that statement is not 100% accurate. Of course, commission plans are a reward for your salespeople/seller-doers. But that is not WHY you should build them into compensation packages.
Spoiler alert: You implement commission plans to drive the desired behavior you want your seller-doers to exhibit. So yes, it’s a reward for them, but more importantly, it’s a strategic tool for management.
Here are a couple of ‘what if’ stories to explain the concept…
New Product Launch
Suppose you run a midsize market research agency and three of your most senior team members also serve as seller-doers. And let’s say their current commission plan pays them 10% on all services sold.
Now, suppose you also have been developing a new type of software… a real game-changer in the online Qual world. You not only need to get it to market fast-and-furiously to beat out the competition, you also have a lot of costs to recoup.
So, to help drive this strategic focus, you assign a 25% commission on all sales of this new technology. When you do that, where do you think your seller-doers will spend their selling time? [Yes, that’s a rhetorical question!]
New vs. Existing Clients
Given the choice, most seller-doers will default to working with existing clients rather than going after new ones. It’s where they’re more comfortable. The result of this is likely that your business is stable – a good thing – but not growing the way you want it to.
Again, consider the commission plan. In this case, you might pay a 5% commission on work from existing clients, but a 15% commission on revenue from new ones. Like the previous example, where do you think your seller-doers will want to spend their selling time?
Yes, these two stories are overly-simplistic, though both are very real possibilities. And they make the point that, as management, the commission plans you develop (and update each year, if needed) can be a significant driver/motivator for your seller-doers to do the things you want them to do, which isn’t always what they want to do.
So, as you’re looking for ways to achieve your company’s revenue goals this year, don’t just use commissions to reward your seller-doers for a job well done, but give the commission plan some serious thought as to how it can help advance your business strategically. Done right, it’s a win-win… for your firm and your seller-doers.
Good luck and good selling.