Along with the many daunting tasks that come along with setting up a new sales team, building an incentivization structure that makes sense for both your team and the business can feel like a unique challenge.
How do leaders ensure that their sales teams have a clear path to reaching their goals, and are rewarded in a way that has a positive impact on the company’s bottom line?
In this piece, revenue operations expert Sherry Zarabi dives into how to set up an incentive structure that is both simple and effective at rewarding your team for their hard work while driving profitability for your company.
Startups have the dual challenge of originating from a highly experimental environment, but needing to establish traction and prove success.
When building an incentive structure for a startup, there is no internal historical precedent to consult in order to ensure you’re on the correct track. In a more mature organization, you’d have access to metrics like close rates, average annual contract value, and average sales cycle duration to guide the decisions you make around designing an incentive structure.
Additionally, many startups are still trying to figure out product market fit. No matter how good a job you do at incentivizing your revenue teams, they won’t be able to sell your product unless you have potential customers with a need for what they’re selling.
Lastly, in startups, every dollar counts. You need to create an incentivization model that makes sense from your team, but can also pass the test of being approved by your board and other leaders within your org.
In revenue operations, incentives are the reward levers we create to motivate revenue generating teams to drive the business towards the goals we want to achieve.
Incentives come in a variety of forms, the most common of which are: commission, contest prizes, bonuses, and employee recognition.
Commission comes in many shapes and sizes with structures that vary by team (an Sales Development Representative comp plan may look very different from one for an Account Executive). It’s important to structure around incentivizing the right behaviors and to focus on transparency, achievability, and quality over quantity.
Employee recognition in particular can be an easy one to overlook, because the reward is less tangible and may feel like it is of lesser value. However, data tells us that employee recognition is effective at both reducing turnover and improving the quality of employees lives. It’s a win-win.
Put simply, incentives are an important tool that revenue professionals can use to achieve specific behavior goals within their team.
Ultimately, to build an effective compensation plan, you want to keep a few key aspects in focus.
I recently read Mixed Signals: How Incentives Really Work by Uri Gneezy and thoroughly enjoyed his account of how incentives are used in work and everyday life to motivate us to do “the right things.” It does an entertaining job of teaching us to design better incentives for better results in our life, and work. Often there is a conflict between what we say and what we do in response to these incentives. The result: mixed signals.
One real life instance I’ve seen of this being navigated effectively was at a past client of mine that operated in the SaaS space. In SaaS, commission is often incentivized at around 8-10% of a sale.
For many companies, as with this one, the main goal was to continue generating revenue. However, how do you approach revenue that your team has already done the work to capture, like in the case of a renewing customer, vs the revenue gained from a new customer?
The “right thing” in this instance is that you want both, to retain the loyalty of your existing customer, and to bring in new business. If only one or the other happens, you’re likely to land in hot water with your revenue goals. However, getting a new customer in the door means more opportunities to retain customers in the future.
Therefore, in order to ensure that their revenue teams hit their earnings goals while also generating new business, this org incentivized commission at 8% for winning new business, and 5% for retaining existing customers. In this way, they were able to carve out a clear priority around the importance of new business for the company.