Businesses that want to boost sales should have a well-designed sales compensation plan that motives employees effectively and ensure it mirrors the culture of their organization, according to two experts who recently presented a BLR audio conference.

In the 90-minute audio conference, Gerd Neumann, president and CEO of GN Consulting LLC, and Rick Olivieri of Olivieri & Associates offered tips for designing effective sales compensation plans.

Neumann said sales compensation plans must be tailored differently for employees with different tasks and skills. He identified two groups of salespeople: "hunters" (those who go after new sales) and farmers (those who handle existing accounts). In addition, he outlined three types of psychological profiles of salespeople. While money motivates all salespeople, other factors of the profiles come into play as well.

Bottom-line salesperson. This person sells because they are competitive and want to "win," which is what motives this type. This type of person likes to be challenged. He said this type has the characteristics of a hunter.

Social salesperson. This person develops relationships with the customer, who buys because he or she likes the salesperson. This person is motivated by interactions with people. This type has the characteristics of a farmer.

Knowledgeable salesperson. This person knows the products extensively, making the customer confident about the products and purchases. Acquiring and sharing knowledge motivates this type of salesperson. This type combines the qualities of the hunter and farmer.

Olivieri said sales is one of the most important functions of an organization and the level of professional skills needed is rising. He said in order for the sales compensation plan to be effective, it must mirror the corporate culture.

He said the first step in deciding the mix of salary and incentives for salespeople is to look at the marketplace. He suggested looking at compensation surveys and examining the median total cash level for the job. He recommended that employers structure the compensation program to pay that amount at average performance.

Olivieri also identified two incentive formulas. The income-producer formula is used typically in smaller or newer companies. In this formula, commissions are based on a percent of revenue generated. He said the trick is in finding the sweet spot in motivating salespeople and generating profits for the company. The sales-producer formula is used in larger or more-mature companies. In this formula, incentives are based on the portion of quota achieved.

Align Sales with Business Strategy

Neumann said that companies must ensure that sales fits the business strategy. To do this, companies must know the differences in "small" and "large" sales, which require different skill sets.

He said the difference between small and larges sales is in the length of the sales cycle, the relationship with the customer, and the risk to the customer.

Small sales tend to have a shorter sales cycle, and the business relationship typically ends when the sale is made.

Large sales begin with a contract and have a longer sales cycle. The decision-maker at the customer must trust the salesperson. Therefore, business ethics is important.

The two types of sales require different sales techniques and skills. Small-sales techniques include open/closed questions, objection handling, and closing techniques, Neumann said.

Those techniques would most likely fail in large sales, however. Large-sales techniques include a business analysis, the extended value concept (return on investment), fighting competition, and relationship management.

For large sales, the salesperson must understand the objectives of the decision-makers, who all those decision makers are, and the political network within a client company, according to Neumann.

Measure Sales Performance

For measuring sales performance of large sales, Neumann said one needs to measure the process itself. This requires having the right definitions of sales probability. The company should be able tell at any point whether the sales project is on the right track to win. He said sales probability should be based on the quality of feedback from the customer.

When measuring sales performance, professional-selling techniques and salespeople's relationships with customers must be watched, Neumann said.

In conclusion, Olivieri said that the sales function changes more than any other function within a company. He recommended that companies review their sales compensation program annually to identify any possible problems. He said questions employers should ask in the review of the program include:

• Is the employer getting a reasonable return on its investment?
• How difficult is it to calculate incentives and make payment?
• Does the plan support business objectives?
• Do the best salespeople receive the most pay?

Neumann concluded by saying that sales mentoring is key to ensuring a measurable increase in sales.

Purchase a CD copy of the Sales Compensation Planning audio conference.