Sales Commissions Can Fail in Three Ways

Nov 16, 2020 | Income, Strategy

Sales commissions can fail in three big ways––two are somewhat obvious, and one is hidden and does damage if unnoticed. 

Before you even consider setting up a commission plan, you have to be ready for the culture change it brings.

Commissions can be very “I” centric and encourage the individualistic nature of salespeople. As long as that does not run counter to your culture, then commissions have a chance to improve your success. 

Why Commissions Backfire

Many companies are ultra team-oriented, especially if they rely on team profit sharing to motivate and reward. If your firm relies strictly on team rewards, then a strong commission plan could attract the wrong type of sales personality. This could cause a rift in your company culture. 

Move Forward Slowly

The second reason commissions backfire is when they are not paired with a rigorous estimating system or if they allow the salesperson to sell work that is poorly priced. In this case, you have to design the commission plan to ensure that all your company’s financial goals (that your salespeople influence) are covered in your commission plan.

The Hidden Failure

The third reason commissions fail happens is when they allow the salesperson to be successful, despite the company not hitting its goals. 

This third failure can happen in a few different ways:

  • The commission plan is set up such that a salesperson hits their goals and even does so profitably for the company, but the company doesn’t hit its total sales goals and thus misses its year-end profit targets.
  • The salesperson hits their goals, and the company hits its goals, but still, the commission plan leaves money on the table. Either it leaves sales dollars on the table or profit dollars on the table! In this case, the commission plan caps the possible success that a salesperson can achieve, and this undermines the company’s long-term profit goals.
  • The profit goal that the commission plan aims for is simply too low, and not lined up with the company’s budget or strategic aspirations.

Your Challenge:

  1. Identify if your sales commission plans are causing any unintended consequences. Be brave, and call out and fix the problems if you see them. Don’t be beholden to any one salesperson who may have you over a barrel.
  2. Make sure your plans are not overly complex so they are easy to administer and be internalized by the salespeople.
  3. Ensure your plans stay motivational and relevant to the newest challenges in your growth.
  4. Line up your highest profit goals and aspirations with your commission plans (and with all your incentives!) so that you truly achieve a win-win environment.