Incentive Compensation and Structural Solutions to Achieve Profitable Growth

As challenging macroeconomic conditions place pressure on media companies, growth is projected to slow by 5% in 2024. This slowed growth, coupled with high borrowing costs, is spurring businesses to place an increased focus on generating incremental top-line without sacrificing bottom-line results. As a result, the ever-present dilemma is identifying how to drive profitability and at what level of the organization it is reasonable to expect bottom-line growth.

As leaders look for levers to increase focus on profitability, many turn towards sales incentive programs as a risk/reward mechanism to hold individuals accountable for delivering profitable growth. To better understand if compensation is a viable solution, it’s critical to evaluate the sales and delivery involvement and the influence these factors have over profitability. Often, it’s better not to put individual contributors on a profitability metric. Let’s dig into why that is and what alternative options exist to drive profitability.

False Lever: Sales Compensation

A recent Alexander Group study found that less than 1% of publishing and AdTech companies deploy profitability metrics in individual contributor (IC) plans. The media customer journey navigates a complex sales and delivery ecosystem, making it the seller’s goal to maximize the value of a relationship to monetize through campaigns and services. However, since it is not their role to execute or influence campaigns, it is untenable for a sales rep to have control over target acquisition cost or campaign profitability. Thus, optimizing the various campaign mix scenarios across programmatic, contingent, owner-operator, etc., is the responsibility of the business—not an individual sales rep.

Still, some situations support managers or leaders carrying a profit-based metric. Around 6% of companies use profitability as a key compensation measure for leadership and management populations, particularly for regional and country positions.

Optimize Growth Plans for Profit

Alexander Group data also shows that the key differentiator between organizations delivering high profitability and high growth is their ability to drive 64% higher expansion dollars versus the low-growth, low-profit companies. This means that it is important to understand how efficient (and realistic) a company’s growth pathways are based on its marketing, pre-sales, sales and post-sales investment. Aligning goals, marketing programs and resources to more efficient revenue sources will improve profitability profile. For example, landing new customers can be expensive whereas nurturing an existing relationship is a more efficient hunting motion and leads to improved churn results. Clients using more than four products tend to have 0.5x the amount of revenue churn when compared to lower usage accounts.

Implementing Structural Improvements

Rather than tying sales compensation plans to profitability, media companies should focus on the following structural improvements to drive profitable growth:

• Right Size Organizations: Balance specialization with cost-of-sales to improve profitability across customer segments
• Deal Structure: Develop support mechanisms like rate cards, deal desks and manager deal pricing approvals
• Ad Ops: Improve coverage and influence to maximize campaign ROI

Still, the relationship between profitability and sales compensation should not be ignored. While profitability should not dictate plans, this data can still be effective as a non-compensation performance indicator. If profitability begins to fall behind, companies should evaluate other influencing factors rather than reassessing compensation plans.