An agile sales organization needs agile incentives

In many companies, people are dissatisfied with sales planning’s inflexible status quo, which typically involves developing an annual resourcing plan that defines static headcount, roles and account assignments at the start of the year. Any strategic adjustments have to wait until the next planning cycle—however long that is. Industries like consumer goods and tech have long since transformed many parts of their operations away from long planning cycles and captured significant value as a result. As an example, apparel companies like Zara and H&M disrupted the fashion industry by moving away from annual planning cycles to agile design, manufacturing and distribution, capturing massive value in the process.

But even within the tech industry, where agile has taken hold in many areas, the sales function has been slow to change. And they know it—many tech sales leaders have signaled to us that agility is a top priority. But even as this shift is underway, many sales leaders are discovering one fundamental barrier stands tall: the way salespeople traditionally get paid.

There are two primary levers that sales leaders are pulling to enable a shift to agile:

• Shrinking the planning cycle: Companies are creating an environment in which the sales team can continually be sized and aligned to the best opportunities. That often starts by moving from an annual planning period to shorter (maybe quarterly or even monthly) planning horizons.
• Investment in agile selling roles: Companies are shifting their sales investments toward roles that are inherently dynamic. This shift could mean investment in pre-sales teams that are allocated to specific sales pursuits on an ongoing basis. Or it may mean a greater investment in digitally enabled hunting teams that are continuously pointed at the highest value inbound and outbound leads.

Pulling either of these levers toward a more agile sales organization requires fundamentally rethinking sales compensation plan design, goal setting and plan administration. Let’s take each lever in turn.

When the pandemic hit in 2020, many sales leaders were forced to revisit sales plans and incentives midyear, upending the traditional annual planning cycle. Some of our clients have sought to maintain those learnings even in the new normal, shortening their overall sales planning cycles—which necessitates shorter sales compensation plan periods as well. Indeed, in our annual benchmarking studies, we’re seeing more sales compensation plans shift from annual to quarterly. A recent ZS benchmarking study found that the percentage of companies with an annual performance period dropped from 71% in 2008 to 47% in 2021. Quarterly planning cycles rose from 15% to 42% during the same time period.

Doing away with the annual planning cycle has some important benefits. Sales organizations can react quicker to change, ensuring the sales team is continuously realigned to the accounts, activities and products that maximize growth. It also allows companies to refine incentive plans throughout the year, putting emphasis on the most desired behaviors and ensuring appropriate, motivational targets. A shorter period also enables more systematic and effective use of targeted incentives like sales contests and special programs (also known as SPIFFs) to drive specific behaviors. In the same incentive research study noted above, we saw 95% of companies are now leveraging SPIFFs, up considerably from past years.

But this shortened sales compensation period has a few key requirements. First, shrinking the planning cycle often requires a change in sales culture. Change tends to be easiest for companies with shorter selling cycles. For companies with longer selling cycles, it can be challenging to make significant changes to territories, quotas and sales compensation on a monthly or quarterly basis due to disruption in customer relationships, particularly for in-flight opportunities. But sales leaders can overcome these barriers by embracing a culture of dynamic sales planning. Leaders need to help salespeople understand how agility will help both the organization and sellers themselves succeed. The sales planning process must target changes to areas with the highest net benefit and mitigate unnecessary disruption. And of course, the compensation plan itself must be aligned with this new reality. This can include increasing team components to encourage collaboration and crediting rules that incentive a smooth handover of accounts and opportunities.

Second, companies must have modern sales performance management (SPM) systems that can quickly adopt to change. Modern SPM systems allow changes in territory assignment or quota allocation to immediately flow through the commercial operations system and automatically update the sales compensation payout. Companies that don’t have modern systems typically require a lot of manual intervention, which makes it difficult or impossible to make frequent changes.

The second way we see companies shifting to agile is through the specific roles being increasingly implemented, both in tech and across industries. We see three growing role archetypes being deployed in an agile way. Two are focused on “net new” business, while the third is focused on managing existing customers.

One role in which we see agile resourcing in place is with lead generation reps and lead response reps, sometimes called sales development reps. These roles are generating or qualifying opportunities and either handing them off to other sellers or taking them forward themselves to conclusion. One common dilemma with this role is whether to pay on leads generated or the actual sales those leads produce.  The answer to this dilemma typically lies in incentivizing on the primary KPI. If handing off opportunities to another seller is the role’s primary function, the number of qualified leads may be a KPI, whereas quantifying new sales generation might be a KPI if that’s the role’s primary function. If paying on leads, pay at risk tends to be relatively low so as not to drive bad behaviors inadvertently. In either case, a decision must also be made whether to give a single standard quota to everyone or an individualized quota.

The next agile role is the pre-sales specialist role (sometimes referred to as a sales engineer). This role is usually technical in nature and has a deeper technical knowledge of the company’s products and services than a salesperson. In fact, the more technical the role, the more likely it is to be a scarce resource and allocated to top opportunities based on need. This role is most likely to have differentiated opportunity due to the lead allocation process, which brings up the question of how to fairly set individual quotas. Because of this and the desire for teamwork within this group, the most common way to pay this role is to have team sales performance as the primary metric. This has the added benefit of encouraging knowledge sharing and collaboration among the team.

Lastly, the customer success manager (CSM) is handed their clients in a way that’s usually not equal for all CSMs involved. Customers come in at various points throughout the year, and companies must add the new account into a CSM’s book of business as they come in. For companies that place their CSMs on a sales incentive plan (not all companies do), this means that careful consideration must be given to:

• Metrics to hold them accountable: You have to make a decision if you will use company success metrics or customer success metrics
• Desired pay mix: Given the role is to serve the customer, this role usually has lower pay at risk than sales

Where possible, an incentive plan, but one with relatively low pay at risk, is a good idea for CSMs. Revenue versus target as a proxy for customer success is certainly an option many companies employ. Some forward-looking firms are having success with customer health indices based on an array of customer success metrics, like customer retention, product and portfolio usage dynamics, customer engagement through digital and personal means, adoption of key engagement tools and even direct customer feedback. In situations with reliable data, metrics like these reflect the strategy and impact of customer success programs better.

The table below summarizes these roles, the dilemmas around them and what we see as sales compensation best practices.

Agility is an increasingly important trait in winning sales organizations, enabling them to more effectively embrace digital selling, bring increasingly complex solutions to market and help customers be successful. Driving this transformation requires fundamental change to selling roles, processes and enabling technology. But above all, it requires a cultural shift. Sales incentives must evolve and align to enable this change.