It’s the season of sales compensation planning — a time of passionate debates, endless discussions, and spirited strategizing, all in pursuit of crafting the perfect compensation plan.
Did you know that two thirds of companies hesitate to revamp their compensation plans because they fear messing them up? Revisiting compensation plans can be a nightmare, we get that. But it should still be a top priority every year for you.
The entire process, right from the initial brainstorming to the final execution can be quite strenuous. Yet, it’s crucial to get your comp plans just right to keep your sales team driven and to achieve your company's revenue goals.
With the right strategy, you can create effective comp plans that inspire your team to perform above and beyond expectations.
The sales comp planning process typically kicks off in August and continues until January. We’ve broken this down into three distinct phases to make it more structured.
Are you ready?
Let’s go!
The Three Phases of Sales Comp Planning:
The three phases of Sales Comp Planning each have their own specific objectives and actions to carry out. Here are the three phases:
1. GET - The Preparation Phase
2: SET - The Implementation Phase
3: GO - The Rollout Phase
Let’s take a look at each phase one-by-one.
GET - The Preparation Phase
These are the first two crucial steps in your sales compensation planning process. First, you will gather all the necessary data, and then, you will dive into analyzing it to design your comp plans. By then, you’ll have everything you need to create and implement super effective comp plans.
Now, let's take a closer look at these two steps.
August - Extraction of Data
Your Action Plan:
This is when you’ll be collecting data from various sources and ensuring that it's cleaned up for further analysis to create your comp plan. This data will include information from the previous year, such as your sales team’s quota attainment, the total revenue generated, details about your sales pipeline, exceptions if any, and other granular level information about individual deals. You’ll also collecting information around which SPIFs were hit, what bonuses were paid out. Things that aren’t primary metric but those that were supposed to drive behaviours like multi-year contracts, cross-sell etc., needs to be collated here for review.
But why are we doing this?
The End Objective:
By the end of this stage, you should have all the crucial data ready for analysis. There’s no way to know if your plan worked or not unless you have this step completed.
September - Analysis of the Plan
Your Action Plan:
Here, you'll dive deep into your previous compensation plans and thoroughly analyze the data you've collected. This in-depth assessment will help you spot what worked well in your past plans and where there's room for improvement, giving you valuable insights to shape your compensation plan for the upcoming year.
During this analysis, you’ll also need to look at specific metrics, like attainment details, and compare it to historical data. For instance, if most of your sales representatives have achieved 70-80% of their targets, you can compare this with last year's performance to understand the difference. You should also dig into metrics like the total revenue generated for each dollar spent on commissions, the cost of closing deals, etc.
Additionally, you can evaluate the impact of special performance incentives, known as SPIFs, and decide how to incorporate them into your compensation plans.
The End Objective:
By the time you reach the end of the month, you should have some solid recommendations on what strategies have worked in the past and what you need to keep in mind when designing new compensation plans.
SET - The Implementation Phase
This is where things will start to get interesting. With all the information and insights you’ve gathered in the first phase, you can now begin the designing and implementation process!
While it’s definitely exciting, this is also the meaty part of sales compensation planning. Here’s how you do it right:
October/November - Plan Design and Financial Modeling
Your Action Plan:
After thoroughly analyzing your past compensation plans, you’ll have to optimize them by making necessary adjustments. But how do you know what these adjustments are? Take into consideration your budget constraints, insights from the analysis, and current industry trends. Ensure you have a clear understanding of which performance metrics to incorporate in the plan based on your business objectives. You can also join the Uncappd Community to work with other expert compensation folks to get feedback.
This process will result in the creation of a draft of your sales commission plan or modified plan. Once you have this in place, you can apply modifiers to it. These modifiers will be based on historical attainment data, taking expected growth into account.
This is where having a modern ICM like Everstage can come in more than handy for you. By using features like Time Machine, you can simulate and find out your sales reps earnings for the commission plan you are designing. This way, you can analyze the effectiveness of your plans, and can make the changes to ensure maximum profitability.
The End Objective:
As you reach the end of this stage, you’ll have the plan that best aligns with your business goals and can genuinely inspire your sales representatives. Once the plan is finalized, you’ll need to get buy-in from the leadership team. With a lot of questions and back and forths, it usually takes the full Nov to get alignment with the leadership around the plan.
December - Configuration of New Plans in ICM
Your Action Plan:
Once the plan is finalized, it's time for you to configure and integrate the updated compensation plan into your Incentive Compensation Management (ICM) system. It's essential that your ICM system can adapt to your unique plans and has the ability to scale as needed.
Most importantly, choosing the right ICM system is crucial because it can have a substantial impact on the effectiveness of your commission plan. To get detailed guidance on selecting the ideal sales commission software, check out this buyer’s guide!
The End Objective:
Conduct a round of validation with your historical data, perform test runs with live data as well, and ensure that there aren’t any gaps in the process.
GO - The Rollout Phase
Congratulations! You’ve now designed a complete compensation plan. But this is just half the battle; the next crucial step for you will be how to successfully roll out the plans with minimal friction. That's what will happen in this phase. So, how do you do that?
Jan - Rollout of New Plans
Your Action Plan:
Without clear communication of your plans, your sales team might have a different idea of what their comp plans look like, and what their goals are. This can be disastrous for the morale and trust of your employees. That's why it's important to properly communicate to your entire team, and get everyone on board.
Dive into the nitty-gritty details of the plan, and don't hesitate to involve folks from HR and sales operations to help with any complex questions. Make sure everyone understands the ins and outs of the plan, and that there are no misunderstandings anywhere.
It's also a good idea to host smaller group sessions and encourage one-on-one chats. This is your chance to explain how the plan benefits each person individually, how it impacts their earnings, and to address any concerns they might have.
The End Objective:
Ultimately, you not only want everyone to just understand the compensation plan, but get them on the same page as well.
February and Beyond - Continuous Analysis of Comp Plan
Your Action Plan
Don't forget to keep a close watch on your compensation plan all year round. By consistently evaluating and documenting, you can quickly tackle any unexpected hiccups and make sure the plan stays effective and in line with the company's goals.
The End Objective:
This will help you stay on top of the plan regularly, and if it's not quite hitting the mark, don't hesitate to take action and make the necessary tweaks. This way, you can ensure that your sales team remains motivated, and your business is heading in the right direction.
Final Thoughts
Now that you've got a handle on the key steps in sales compensation planning, remember that each of these stages plays a crucial role in crafting effective plans that drive business growth.
However, manually tracking historical data and running simulations can be a cumbersome, time-consuming process. This is where an ICM system can help you. They eliminate the need to manually track the performance of your comp plans, and offer real-time data, helping you to make the necessary adjustments immediately.
Curious about which ICM solution suits your business? Book a demo with us to see how our commission platform can benefit your business.
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