SellingBrew

Insights & Tips

Already a subscriber? Login

Become a subscriber and unlock an information arsenal focused on making your sales operation more effective.

How to Design Sales Comp Plans to Fail

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.

Get Immediate Access To Everything In The SellingBrew Playbook

Related Resources

  • Building a Sales Ops Center of Excellence

    Sales Operations has long been characterized as a tactical support function. This tutorial provides advice on moving beyond tactical support and transforming Sales Operations into a strategic driver of sales effectiveness.

    View This Tutorial
  • Fostering Productive Collaboration

    In this recorded session, we discuss how to identify and influence the groups that contribute most to our sales performance and explore the 8 key ingredients for effective cross-functional collaboration.

    View This Webinar
  • Taking Your Sales Operation to the Next Level

    It's common for sales operations to get mired in tactical sales support and administrative activities. This four-part recorded training session reveals the steps leading sales operations teams are taking to transform themselves into a much more proactive and strategic business function.

    View This Webinar
  • Overcoming the New Realities in B2B Sales

    Since the advent of the Internet, the B2B buying process has been changing dramatically. In this expert interview, Tom Searcy, the author of "Life After the Death of Sales," discusses how B2B sales leaders can deal with today's realities and prepare their organizations for tomorrow.

    View This Interview