This post takes a look at compensation tools for motivating and rewarding effective sales teams. To learn more practices of highly effective sales forces, download the Center's full report, The Force Is With You: Building a Highly Effective Sales Organization.
Setting a goal is very often the first step in reaching that goal, or so say the proponents of using sales quotas. Those who believe in setting clear sales performance expectations may also be advocates of rewarding salespeople for their hard work via commission dollars and/or bonuses.
But do such strategies work?
Recent research by the National Center for the Middle Market suggests that they do. In fact, the fastest growing middle market companies tend to make greater use of both sales quotes and commission-based compensation than their slower-growing peers, suggesting that such strategies may help drive rapid business growth and greater success.
Here’s a closer look at how some middle market firms are leveraging these tools.
- Fast-growing businesses set the bar. Fewer than half (48%) of middle market companies set and use sales quotas. Broadly speaking, the larger the business, the more likely it is to establish performance expectations. However, the most significant differences appear when comparing companies by rate of revenue growth. A majority (54%) of businesses that grow by 10% or more use sales quotas compared to just 44% of slower-growing companies. Bottom line? If your business is looking to boost revenues, consider setting sales goals for your sales team.
- Sales managers establish sales quotas. Across middle market companies that use sales quotas, the sales manager is most likely to set the quotas. In about a third of businesses, the Chief Sales Officer (CSO) or Chief Executive Officer (CEO) is also involved in the process. In 16% of high-growth firms, salespeople have a say in setting their own sales quotas. To establish aggressive yet attainable quotas, it may help to have more parties weigh in. In any case, it’s important for the parties involved to have a solid understanding of the market conditions and the organization’s overall growth goals.
- Quotas are based on revenues generated. Eight in 10 companies that set sales quotas base their performance expectations on revenues generated. Some companies also factor in profits and activities performed.
- Commission can help establish an effective sales force. About seven in 10 middle market companies use commission as part of the compensation package. On average, commission makes up about a quarter of the salesperson’s paycheck while base salary accounts for about 60% of pay. Generally speaking, larger middle market firms are more likely to offer commission, as are companies that rate their sales forces highly effective. What’s more, high-growth businesses and businesses that consider themselves the best at sales base a higher percentage of their compensation package on commission dollars.
The research clearly shows a connection between sales quotas and commission, and sales force effectiveness and revenue growth. To learn more about these sales strategies and other techniques for creating a highly effective sales force, see the Center’s full research report, The Force is With You: Building a Highly Effective Sales Organization.