Introduction
A client that offers a platform to collect, manage and analyze a customer’s data desired a sales compensation program that included:
A usage-based compensation strategy that aligned sellers, overlay incentives and company growth strategy
A best-in-class sales compensation solution that rewarded selling both committed and consumption contracts
Improving sales compensation governance practices that increased reps’ confidence in plan administration and enhanced the ROI of variable compensation
Removing complexity that resulted from numerous sales measures, accelerators, pay curve breakpoints and retroactive constructions that increased plan administration costs and created confusion for sales reps
The client believed they had an expensive sales compensation program that was not paying for the desired behaviors. They sought market practices to test their hypotheses and identify root causes. The client desired to grow their consumption business by double digits, but knew their growth was going to be under stated if they continued over-paying on the plan and didn’t create consistent sales practices that drove revenue growth.
They chose Alexander Group because of the credibility of our proprietary benchmark database, strong industry viewpoint on consumption trends and expertise in the technology sector with other consumption-based clients.
Approach: Gather Data to Assess Gaps
Alexander Group’s proven project approach helps companies like this one create sales compensation plans that incentivize sales teams. Alexander Group conducted meetings with internal stakeholders to ensure that a plan was approved and adopted. Our project approach included the following:
Assessment
Alexander Group conducted interviews across the organization, gathered and analyzed historical data, and created a plan based on our exclusive benchmark database of comparative firms. The result provided insights into current state while developing a comp plan that reflected business realities and company goals.
DESIGN
We conducted collaborative workshops to design future-state plans and included appropriate stakeholder views and relevant data points.
Costing
Based on the sales compensation plan designs, Alexander Group modeled future cost implications, including the size and impact of the plans that were jointly developed.
Alexander Group’s analysis revealed that, on average, over 20% of reps’ current incentive earnings were from above-the-plan components, which drove up costs for the organization. Above-the-plan components includes elements not part of target incentive – bonuses, payout/credit uplifts, add-ons, SPIFF, etc. In addition, although approximately half of the reps achieved their quota, nearly 20% of sellers achieved greater than 200% of quota, when they budgeted for 10% or less. These results indicated that the current plan mechanics, and quotas, created an expensive sales compensation program.
Key Findings: Pivoting to Consumption-Focused Sales
Based on these future state plans, Alexander Group was confident that the client could achieve its sales compensation program goals. In particular, the company wanted to focus on increased consumption opportunities and plan design incentives that drove performance towards this goal. In addition, the comp plan needed to pay for performance and included:
By aligning compensation, performance and expectations towards consumption business, reps were better motivated to seek opportunities to grow revenue and support company goals.
Outcome: Refocusing Leads to Success
As a result of our recommendations, the client increased consumption-based business and number of net new logos closed.
The client realized only 1.5% additional costs from add-on components compared to their previous cost of over 20%. In addition, plan costs were more in line with benchmarks at 120% of target incentive. These results indicate that newly developed sales compensation plans now appropriately incentivized reps for the desired behaviors and that the organization was realizing a high ROI of their sales compensation dollars.
Create Your Sales Compensation Plan to Cultivate Growth
Many companies have similar issues aligning their compensation plans to their sales and growth strategies. Getting sales compensation right is a difficult process to do given the many competing stakeholders, and strong opinions of those who have a vested interest in the outcome. Alexander Group brings a process, expertise, industry knowledge and most importantly a sensitivity to how these complex issues affect sellers and their management.
Let Alexander Group help you in your next sales compensation planning cycle.
About Alexander Group
Alexander Group understands your revenue growth challenges. Since 1985, we’ve served more than 3,000 companies across the globe. This experience gives us not only a highly sophisticated set of best practices to grow revenue—we also have a rich repository of unique industry data that informs all our recommendations. Aligning product, marketing, operations and finance efforts behind a successful sales organization takes insight and hard work. We help the world’s leading organizations build the right revenue vision, transform their organizations and deliver results.
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