Praxis Blog

The Art and Science of Sales Compensation

Richard Lenahan - Wednesday, February 08, 2012

Business challenges need objective solutions supported by empirical analysis.  Given the current economic climate, it is more important than ever to understand the return on your investment when making any kind of change.  However, when it comes to designing and implementing successful sales compensation plans, it is very easy to under-estimate the qualitative, non-empirical factors. 

There is definitely a “science of sales compensation”:  quantitative analysis and statistical modeling are critical.  Likewise, tracking your CCOS (Compensation Cost of Sale) over time can be an essential diagnostic tool in evaluating the effectiveness of your program.

However, there is as much “art” as there is science in the design process, and one of the most common mistakes is to take an overly formula-driven approach.  After all, a successful sales compensation program not only has to be aligned with your corporate objectives and resonate with your sales people, it also has to seamless merge into the "corporate culture" that it both reflects and shapes. 

I don't know of any way to measure culture, but how an organization views its sales force – and selling in general – can be indicative of the culture of a company.  Do any of these statements sound familiar?

v “Successful sales people should be the highest paid in the company because they are the revenue-producers.”

v “Of course sales people are motivated by money, but they need to be business people first.”

v “All sales people are ‘coin-operated’.”

v "If the company is not meeting our financial goals, why should any sales person be paid more than their target commission?"

v  “The sales compensation program is primarily a way of controlling the sales force.”

v  “Why do we need sales people anyway?”

There is no scientific formula for determining which sales compensation plan is best for your company.  A plan design that works well in one company can fail badly in another, simply because of the qualitative intangibles embedded in the culture of the enterprise.

The key to developing and implementing effective sales compensation plans is to balance the "science" of sales compensation with the “art” of understanding the culture, the unstated rules, and the "personality" of the company.

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Recent Blog Posts....

  1. Who Owns the Sales Compensation Program? Richard Lenahan 29-Jun-2012
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  3. The Art and Science of Sales Compensation Richard Lenahan 08-Feb-2012

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