End-user clients today demand IT solutions to deliver business value and align to their unique business requirements rather than individual point products.
These demands place pressure on the sales strategies and models of IT providers such as VARs, system integrators, solution providers and ISVs to improve sales force effectiveness while at the same time controlling costs.
A key challenge facing IT providers in a talent-constrained market is how to develop and deploy a sales compensation plan that will deliver the company objectives as well as attract, retain and motivate quality salespeople.
The accomplishments of the sales organization can be directly correlated to the acceptance and effectiveness of the sales compensation plan.
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Based on research conducted by Gartner, based in Stamford, Conn., it has become clear that an effective sales compensation program should:
• Compensate beyond financial objectives by including factors such as training, new customer acquisition and account retention
• Carefully balance base/variable mix
• Place emphasis and differentiation on company objectives
• Embrace non-cash compensation programs (especially for recognition)
• Have no cap, except in the case of very unusual sale
• Provide real-time data on performance against stated goals
• Be clearly communicated and understood by sales staff
When designed and implemented correctly, a sales compensation plan will motivate sales personnel to sell in the best interest of both the company and themselves. The failure to align corporate objectives with compensation results in sales inefficiencies and unrealized profits when sales people fail to optimize their compensation programs.
Providers that fail to regularly reassess and retool their sales organizations, quickly implement necessary changes and restructure sales compensations program will:
• Experience as much as 25 percent incremental selling cost
• Lose up to 20 percent of viable sales opportunities
• Lose as much as 10 percent of their market share
• Increase turnover of key sales people by as much as 20 percent
• Suffer a reduction in “market image” and level of “client trust”
Equally important as an effective compensation plan is the caliber of the sales force. Organizations will only be as successful as the people who represent their products to the client base. In addition to income opportunity, sales professionals rank professional development, career advancement and access to leading-edge tools as being the most important.
Involuntary turnover of salespeople has a devastating impact on overall group performance. In addition to the loss of training investment and broken client relationships, Gartner research shows twice the performance difference between tenured sales representatives (with two or more years of tenure) and new sales representatives (with six to 12 months tenure).
Effective new-hire training programs can rapidly reduce the time to performance, thereby improving productivity. The continuous development of the sales organization through training will improve sales skills, product knowledge, market intelligence and process capability.
Having an effective sales compensation plan, along with making consistent investments in hiring, training and career development, will pay dividends for IT providers.
Regrettably, when IT providers look for areas in which to reduce company expenses, cost of sales (including compensation), hiring sales personnel, robust training curriculum and sales effectiveness technologies tend to be at the top of the list for cuts.
These may provide short-term improvements, yet in the long run will only hurt overall company sales growth. Providers who are diligent in creating and maintaining an effective compensation plan will be better equipped to fulfill their clients’ specific requirements.
Tiffani Bova is a Gartner Research Director covering the topics of IT channel sales, programs and alliances for the IT leaders that Gartner serves.