Whether in books, magazines or on the Web, there’s no shortage of advice available for individuals charged with designing sales incentive compensation plans. But where do you go if your sales force operates differently than the typical, mainstream sales organizations most of this advice targets? If you’re smart, you turn to David Cichelli, author of Compensating the Sales Force: A Practical Guide to Designing Winning Sales Compensation Plans (McGraw-Hill, 2004) and senior vice president of The Alexander Group (www.alexandergroupinc.com), a sales effectiveness consulting firm.
Among the most vexing conditions facing sales compensation designers, as Cichelli puts it, is the challenge of multiyear contracts. If all revenue isn’t realized at the time of sale, how should sales reps be compensated? Should they still get their full commissions as soon as the sale is made? What if the contract is canceled at some point prior to fulfillment?
Cichelli suggests three possible solutions to the multiyear contract conundrum.
Cichelli recommends against treating continuing revenue the same as new revenue because that creates an annuity mentality and rewards farming established accounts rather than hunting up new customers.
Another troublesome compensation challenge Cichelli identifies is the problem of rewarding reps who sell through long sales cycles. Classic quota systems, he says, don’t work with long-term sales because, among other reasons, salespeople cannot go long periods without earnings while waiting 12 months or longer for sales to close.
To keep such salespeople motivated, Cichelli suggests maintaining accountability by requiring in-person once-a-month status reports on major customers to headquarters sales, product and finance management.
From a compensation standpoint, he offers the following four alternatives.