Compensating salespeople is tricky to manage in the overall scheme of your business.

Almost everyone knows that their compensation plan isn’t the best it could be. They just don’t know what to do about it.

We can probably all agree that we want to incentivize behaviors and reward results. But what’s the most effective way to do that?

Let’s take some time to look at an effective compensation strategy for salespeople in your business.

The Old Model

The old model was to compensate all salespeople based on revenue or gross profit. It was pretty easy. Maybe too easy. All you had to do was pay the salespeople a percentage of your gross profit.

But it’s a mistake to incentivize for results salespeople can’t control.

Salespeople don’t have much control over gross profit, or even revenue. So the old model incentivized salespeople to achieve results they had no control over.

Another issue is that the old model rewarded salespeople with commissions for results others probably contributed to. It’s rare for one individual to deserve all the credit for a sale, so this created unnecessary friction in organizations.

It’s important to ask: What results do salespeople have control over that you can reward them for, and what behaviors can you incentivize to get there?

If you want to know who has control, consider who often makes the major decision that determines whether or not your organization wins a project.

Many times, it’s the owner. The sales happen not because of the skill of the salesperson, but because the owner agrees to a compromise — like a deeper discount or an accommodation on terms and conditions. These compromises have a huge impact on revenue and gross profit.

Salespeople have little to do with this.

What you have to determine is which results each of your sales roles actually has control over, and which behaviors you can incentivize to get those results.

Hunters, Chefs, and Servers

To use a restaurant analogy, sales teams have hunters, chefs, and servers. The hunter is the business developer, the chef is the account manager, and the server is the customer service representative.

The idea is to develop incentives for the specific behaviors each salesperson actually performs. Since salespeople can control their behavior, this has a big impact on the results that stem from that behavior.

That’s a much bigger motivator for your salespeople than metrics they can’t move.

The behaviors you incentivize and results you reward will look different depending on each salesperson’s role.

The Hunter

It’s the hunter’s job to add qualified prospects and to have introductory conversations. That’s the behavior you want to incentivize.

A hunter who doesn’t have any introductory conversations isn’t going to get very far, so this is an important behavior to reward. If they’re having these conversations, then they have opportunities to book key meetings with prospects and move them further through the sales process.

In the hunter’s world, moving prospects through the sales process is the goal. If, after finding the prospect and making introductions, they can book the next key meeting, that’s a result you can measure.

If they can book two key meetings, that’s even better.

If you only measure confirmed projects, then you’re missing out on incentivizing the behaviors that lead to that result, and those crucial early steps can get skipped.

The Chef

The behavior for a chef is to attend those key meetings booked by the hunter, develop that opportunity, and also re-engage with or maintain past customers.

Re-engagement is a nice, easy measurement to track by asking how many past customers chefs have reached out to in a given time period. How many meetings and demos with past customers have they booked?

The primary result for the chef is a qualified proposal. The secondary result would be a confirmed project.

The Server

The server’s job is to provide quotes (information) to prospective clients and, like chefs, to re-engage with past customers down the line. This is the behavior you want to incentivize.

As far as results, the server attempts to confirm transactions, and they also try to upsell. These results can be rewarded.

Notice that the hunter doesn’t book a key meeting before having an introductory conversation. The chef doesn’t confirm a project before writing a qualified proposal. And the server cannot upsell a client before first providing a quote.

How many upsells were confirmed?

When salespeople understand that certain behaviors are valued and crucial to results, they’ll cultivate those behaviors and become even more successful.

A Better Way to Compensate

Everyone wants to know, “How do I make my compensation numbers work?”

Before you can answer that question, you have to understand that the entirety of your marketing and sales process is responsible for the business you write and the profit it generates. The Cost of Sales is all your sales, marketing, and incentive costs collectively.

With that in mind, you can determine what percentage of that revenue you’ll use for incentives. Then, decide how that percentage will be distributed among your sales team — your hunters, chefs, and servers.

To do this, you have to figure out which results are most valuable to your business.

Say you designate 5% of your gross profit to invest into incentives for your sales team. Then you can look back at the behaviors and results you’ve been measuring — key meetings, client retention, upsells, etc. — and determine how much each contributed to the organization’s success. You can then compensate your salespeople accordingly.

It’s up to you to decide which results are important for your business and use a compensation methodology that will encourage those results.

Remember that things change. The pandemic taught us that much. There will be times when you need to reassess the results that are important to your business. It’s not a static formula.

Using the above information to determine how to compensate your salespeople will help incentivize the behaviors and reward the results that will take your business to the next level. Isn’t that what you’re really after?