Sales Compensation for the Digital Revenue Organization
The pressure is on for companies to transform in the digital age. Equally important is to adapt your sales compensation program.
The ability to adapt is a trait that serves businesses well as customers, competitors and technology exert the pressure to change. Aside from some new roles and tools, many B2B sales jobs are fundamentally executing the same way today as 20 years ago. Digital transformation forces adaptation.
Leading-edge go-to-customer models look markedly different. They feature new roles and operate by a different set of rules. The management systems driving execution are no exception. This includes arguably the most sacred of these systems–sales compensation. The rules governing the sales compensation program are changing. And companies must reevaluate all aspects of the program in light of digital—who is eligible; how to determine pay levels, mix, and leverage; and which measures and mechanics prevail.
Eligibility
Principle: Reserve participation only for those with a significant degree of persuasion
Changes in customer demands and more sophisticated go-to-customer models enabled by technology and data make the term significant vague. The modern go-to-customer model features tight alignment between sales and marketing. If a marketing manager runs a program that successfully promotes trial and a Click-to-buy Platform enables conversion without intervention from Sales, who should be paid on the sale? No one? The marketing manager? A recent AGI survey shows that 38% of organizations have made digital marketing managers sales compensation eligible. As digital clouds Marketing, Sales and Service definitions, companies must challenge eligibility rules.
Pay Levels
Principle: Set Total Target Cash in alignment with the market and corporate philosophy
The arms race is on for a new breed of sales talent. Companies seek sellers who, in addition to possessing traditional skills (e.g., relationship management, communication, negotiation, problem solving), understand technology, are comfortable using data and are adept at using engagement channels that customers prefer (e.g., social media). Incumbent-based surveys used to price jobs represent a backward looking view of talent and include companies who haven’t made the shift. Their platform jobs haven’t caught up with the new roles being deployed in a digital model. To secure the right talent, companies undergoing digital transformation can’t rely solely on these trusted sources. Market pricing now requires more creative job matching and new data sources.
Pay Mix and Leverage
Principle: The more individual buyer influence, the more pay at risk and upside
Acme Software launches a new Customer Success role1. They are given accountability for driving solution adoption and carry a quota (overlay, account manager is the primary quota carrier) for solution expansion (upsell and cross-sell). Their activities directly lead to Annual Contract Value (ACV) bookings that rival their account manager and new business hunter peers. The nature of how they retire quota is quite different; however, their individual influence is on par with primary quota carriers. Should the CSM have a 50/50 mix like the hunter? How about 60/40 like the account manager? Should top performing CSMs make 2-3X upside? Pay Mix and Leverage decisions are more complex as data and technology give once sales adjacent roles greater influence on persuasion.
Measures
Principle: Select the critical few that align with strategy and job intent; then objectively reward (financial) results
AGI research over 20+ years shows that bookings or revenue is the primary measure used in sales compensation plans (highest weighted of no more than 3). Adapted eligibility rules increase participation in the sales compensation program. More role types demand more measure options. Digital opens up a cornucopia of stable, trackable, highly predictive measures. For example, a new digital sales development rep (SDR) responsible for lead generation, qualification and nurturing executes a complex mix of technology and data-enabled motions (it’s not just smiling and dialing any more). Their incentive plans once featured two measures–lead volumes and bookings for their aligned teams. Access to better, more stable data opens the door to sophisticated scorecard-based measures rewarding for predicative nurturing outcomes known to drive lead acceptance and fast closes.
Mechanics
Principle: Use only those that are simple and easy to understand and administer
Commission rates and goal-based bonuses are often the primary means of translating performance into pay. Many a sales compensation administrator will tell a story of being burned by MBO scorecards and other creative mechanics. As companies undergo digital transformation and digitize their revenue organization, they see massive improvements in enablement. They gain connected Systems, create data lakes and deploy tools. Technology and better data open the door to address drawbacks associated with non-traditional mechanics. Digital coverage models are rapidly evolving (i.e., new roles and channels), putting further pressure on sales compensation professionals to leverage scorecards and other more sophisticated mechanics.
As your company begins down the path to digitizing the revenue growth model, challenge legacy paradigms surrounding sacred institutions such as sales compensation. Be sure to align these critical management systems to how you will deliver revenue in the future.
Learn more about how AGI can help.
_______________
1Customer Success jobs follow several archetypes. The version referenced is accountable for solution adoption post sale (onboarding and education), proactive solution monitoring and troubleshooting, business reviews, upsell and cross-sell opportunity identification and co-selling, and renewal. They carry an expansion quota; however, they are not the Primary Quota Carry (there is an account manager that serves in this capacity).
_______________
RELATED RESOURCES
Digitizing the Revenue Growth Model™: Volume 2
Digitizing the Revenue Growth Model™: Volume 1
Digitizing Revenue Growth: The Path to Success
