Sales Commission and Revenue Goals

If you’re in sales, are given a quota, and then work backwards to achieve it.. STOP! This was my flawed approach for years.. • How many deals do I have to close? • How many opportunities do I need to have in pipeline? • How many meetings do I need to schedule? • How many calls & emails do I need to send out daily? Working backwards wasn’t flawed.. working backwards from a number (quota) that meant nothing to me.. that was flawed. A number a company gives you based on: > amount of revenue they’re looking to generate that year > how many sales reps they have > how much each rep has to produce to achieve that number. A great strategy (for the company).. just not a very good (or inspiring) strategy for me and my goals. My focus used to be on achieving my quota when it should’ve been on 👉 achieving my goals. Can’t tell you how many times I actually did achieve or exceed my quota and yet, didn’t make the amount of money I needed to achieve the goals I set out to achieve. 🤔🤔🤔 Here’s an example: Say your quota is 1 million dollars and you get paid 10% commission on all sales. If you achieve 100% of quota, your payout is $100K before taxes (you follow?).. Conservatively after taxes, you take home roughly around $60K in commission for the year. You’ve achieved quota, presidents club perhaps, company gets what it wants from you, you make $60K in commission. All good right?… unless 😳 your personal goals for the year were: Deposit for new home: $50,000 Closing costs: $5,000 Pay off debt: $20,000 Family summer vacation: $6,000 New car: $36,000 You needed to make $117K in commission, not $60K. You should have been working backwards from $117K 👈 this serves you (and the company for that matter) not from a 1 million dollar quota that’s not designed for you, that not fully serving you. CTA - if you’re in sales and have a quota.. take out a piece of paper, grab a pen, figure out what YOU need to make in commission to achieve YOUR goals.. 👆 that’s your quota.. work backwards from that.

Your sales commission philosophy and structure help you create a healthy sales culture-- and a profitable organization. Use this checklist to determine strengths and weaknesses in your current plan. 1. Do you have clear pricing and profit models? Review current pricing and profit models, and also ensure that your sales team understands pricing and profit models. When they understand the why and the how of your models, they will be more engaged in exceeding their quota. 2. Is your commission plan simple and transparent? Any commission plan should be easy for a sales professional to calculate the commission on their opportunities. Transparency includes clarity around why a commission plan was created in a certain way, along with the terms and conditions of the plan. 3. Is your commission plan consistent? Commission plans that have consistency over time related to calculations, accelerators, and payout timing will build trust. 4. Is your plan based on reliable growth in the market? A plan based on inflated growth percentages won’t create an environment for the right behaviors. If anything, it will deflate the sales team and can cause goal regression. If you’re incenting high levels of growth, consider a forecasted goal and a stretch goal. Behind the scenes, understand your organizational health at both levels to prevent organizational spending based on the stretch goal. 5. Are you clear with revenue and profit guidelines? If your commission structure is based on revenue, confirm that there are protections in place to prevent selling at unprofitable levels. If your commission structure is based on profit, watch for areas where sellers don’t control profit variables (recent examples are product costs, freight increases, and labor demand) and may be unfairly penalized. Additionally, team quotas and incentives are mistake prone; they also need to be clear, simple, and easy to calculate. 6. Do you focus on growth areas without de-incentivizing core areas? For organizations with diversified offerings, or trying to capitalize on an industry trend, take care not to over-focus on those areas at the expense of core offerings. You may find yourself needing to course correct and make up for erosion in core markets. 7. Do you incent solid decision making at any time of the year. Quarter-end and year-end shouldn’t be triggers to discount. That trains our customers how to treat us (waiting to receive a discount), and it erodes a seller’s commission check. Your commission structure isn’t something you can afford to ignore. A commission structure that reinforces the right behaviors and incentivizes sustainable growth is something worth investing in. #modernseller #sales #salesleadership

I made my fair share of mistakes when building commission plans for sales reps. One of the biggest: I only paid SDRs for generated revenue from their opportunities, not for booked meetings or sales accepted opportunities. Not smart. I failed to recognise one key principle: People have to be in control of their own commission. 100%. In the case above, SDRs were dependent on AEs. Which caused a lot of friction in the team. And was frustrating for SDRs. The other key principles of sales commission plans: 1/ Sales reps have to be able to calculate their commission for every opportunity in their funnel. From their head. If you have a salary of 200k, 100k variable and 100k fix (50:50 split). And the target is 800k a year. Write on the commission sheet: 12.5% for every dollar of generated revenue. That is easy to calculate. 2/ No cap and no minimum amount to get commissions. Both of these lead to really stupid behaviour. If you have a minimum amount to reach commissions, reps will stack up deals and make sure they get all of them in one quarter. If you have a cap, reps will make sure deals are prolonged to another quarter in case they already reached that cap in a given quarter. Both make no sense for the business. The one additional benefit that makes sense are accelerators: If reps reach 100% of their commission, they get 15% (instead of 12.5%) on any additional deal. This way, people will speed up to get more deals in. Makes sense for all. 3/ Payments should be as immediate as possible. For SDRs: Monthly. For AEs quarterly. 4/ Commissions are the key tool to change behaviour of reps. Fast. You key strategic goal has to be the core of the plan. If you need ARR, you have to pay for ARR. If you need any revenue, pay for any revenue. If you need to expand into a different market, pay double for that market. Here is an example of a commission sheet: Anything I missed?

Most reps don’t miss quota because they’re lazy. They miss because they don’t know their numbers. Not revenue. Not pipeline. Outreach. If you don’t know how many people to contact every day… Your results will always be inconsistent. Here’s how to fix it: — 1. Define your target ⇢ Set your revenue goal (monthly, quarterly, or yearly) ⇢ Know your average deal size (last 10 deals ÷ 10) ⇢ Understand your conversion rates: ↳ Reply rate = Replies ÷ Total outreach ↳ Meeting rate = Meetings ÷ Replies ↳ Close rate = Deals ÷ Meetings — 2. Calculate your daily outreach Use this formula: (Sales Target ÷ Avg Deal Size) ÷ (Meeting Rate × Reply Rate) That gives you total outreach needed. Divide by working days to get your daily number. And be real - account for sick days, vacations, and any days you won’t be prospecting. — 3. Lock in your routine ⇢ Stick to the number - prospecting is a daily commitment ⇢ Track progress weekly and adjust based on data ⇢ Protect your prospecting time like your income depends on it (because it does) — Success doesn’t have to be a gamble. Do the math. Then do the work. 📬 Subscribe for proven sales frameworks, daily insights & 21 free resources: SalesDaily.co/subscribe _________________________________________ Get my best infographics as printable PDFs for free: ⇢ 72 top sales books on prospecting: https://buff.ly/3ZUJAOZ ⇢ 100 Communication Tips: https://buff.ly/42n47NC ⇢ Time Management for Top Performers: https://buff.ly/3EuNTbm ⇢ Slack Efficiency Hacks: https://buff.ly/mk46BRV

Has your company ever been in a situation where its individual sellers overachieved, but the company missed, or you met your target but paid more commission than planned? This happens when companies make changes that disconnect the distribution of company targets from quotas. Example: Over the course of the year, poor performers may be terminated, and instead of hiring someone new, the territory is absorbed into the other seller's territories. This works fine as long as the active sellers also have the remaining quota distributed to them. The disconnect from company results happens when this is not done. Planned Quota Distribution: Company Target: $10 million 10 Sellers are allocated $1 million each, so are aligned (I'm not including over-assignment) 2 sellers are terminated 50% through the year, and their territories are absorbed by the rest of the sellers without redistributing the departed sellers quotas Actual Company Target: $10 million 8 Sellers target plus the terminated sellers: $9 million You are now disconnected, so the remaining sellers can achieve their objectives while the company misses. Also, if company objectives are met, it will be much more expensive as the company will pay acceleration on the additional revenue generated. Moral of the story: If you're redistributing a territory, the quota also needs to be redistributed.