Comedian Mitch Hedberg likes to joke that “escalators can’t really break — they just become stairs.” It’s not only a good joke, it’s also a good reminder about the importance of thinking through possible failures when you are designing a system.
In B2B sales, one system that often “breaks” is the compensation plans. Usually, companies design their sales comp plans in order to drive a particular outcome. It might be pushing a particular product line. Maybe growing revenue. Maybe increasing margins.
These are all important goals, of course. But companies sometimes don’t think through the unintended consequences that might result. Here are five bad outcomes that we hear about frequently:
1. Over-discounting to close deals
This is one of the most common problems with comp plans. The sales team offers deep discounts to hit their quotas, sacrificing margins and undervaluing the product.
- Root cause: Companies tie compensation to revenue or deal volume with no regard for profitability.
- Impact: These practices erode margins, set poor pricing expectations with customers, and create challenges for future negotiations.
2. Chasing easy wins over strategic accounts
Instead of putting in the time to build strong relationships with high-potential accounts, reps focus on quick, small deals that allow them to hit their short-term targets.
- Root cause: This problem stems from compensation that rewards deal volume or a short sales cycle rather than account growth or strategic alignment.
- Impact: The company misses out on important opportunities for long-term growth and ends up with a customer mix that doesn’t align with its goals.
3. Focusing only on the most lucrative deals
Under some comp plans, salespeople ignore smaller or lower-value customers and concentrate solely on high-value deals that maximize commissions.
- Root cause: The compensation plan designers fail to include incentives for market or customer diversity, skewing the sales mix toward large deals.
- Impact: The organization can’t make headway with some customer segments, limiting market penetration, slowing growth, and increasing the risk from a lack of diversification.
4. Sandbagging deals to game quotas
Sometimes reps will intentionally drag their feet closing a deal in order to make sure it closes in the next quota period.
- Root cause: This situation occurs most often with quota-based plans that require team members to hit a number each period rather than rewarding consistent performance.
- Impact: The impact may seem minimal because the company eventually gets the sale, but this approach generates inaccurate data about customer buying cycles, disrupts forecasts, and damages customer relationships.
5. Selling to poor-fit customers
Sales team members push the product on buyers who aren’t really a good fit and will likely quickly defect.
- Root cause: Some plans fail to account for post-sale success metrics, like churn or customer satisfaction.
- Impact: It might help you reach short-term sales objectives, but over time, this approach leads to customer dissatisfaction and higher churn rates..
This list is pretty long — and it might seem a little depressing. After all, if you tailor your comp plan to eliminate one bad outcome, you might unintentionally create another.
The good news is that it actually is possible to design a plan that avoids all these pitfalls. You just have to take the time to think through the possible points of failure. And of course, it’s always good to do this work before you roll out a new plan rather than after a quarter ends.
We have a couple of resources that can help. Check out Improving Sales Compensation to Boost Results and Designing Sales Comp Plans That Actually Work. They include a lot of best practices from other B2B firms that can help you drive the results you want.
Ultimately, you want a plan that will still accomplish your goals even if someone tries to game the system. It’s a little like being able to climb the stairs when the escalator is broken.
Improving Sales Compensation to Boost Results
It's hard to devise a comp plan that nails the objectives without a bunch of unintended consequences. In this webinar, learn about strategies and tactics for more effective sales incentives and compensation plans.
Designing Sales Comp Plans That Actually Work
For driving salesperson behavior, your sales comp plan is one of the most powerful tools at your disposal. But any incentive you offer can have disastrous unintended consequences. In this guide, learn about four pitfalls to avoid and ten things to consider when designing your comp plan.
