3 Critical Sales Compensation Metrics for a Balanced Scorecard

3 Critical Sales Compensation Metrics for a Balanced Scorecard

Data, data everywhere. For many companies, one of the greatest challenges in recent times has been deriving accurate, actionable insights from data.

Most businesses gather large volumes of data on a daily basis but many struggle to identify the right information which, when analyzed and interpreted, would grant visibility into key elements required to make smart decisions. Moreover, as the socio-economic and political climate evolves, so do the business models. Companies change their sales models to accommodate changing market direction, stay relevant and keep growing.

These constantly changing conditions coupled with ever-growing databases make it difficult for businesses to reconcile present and historical performance with strategic direction. The one remedy, that savvy companies have already discovered, is defining sales metrics such that organizations can stay on course to meet the current and future objectives of the company.

Well-thought-out sales performance metrics help organizations, sales teams and individual reps track progress against pre-determined goals, appropriately incentivize and reward the right sales behavior and identify areas of improvement in sales models, teams and compensation plans. Carefully designed sales compensation metrics also play a critical role in helping organizations assess and adjust to changing market conditions and environments.

The fundamental component of any sales metrics portfolio is the rep compensation itself. Designed properly, compensation plans can be tremendously effective at driving the desired rep behavior which, of course, creates a win both for the sales rep as well as the business. However, simply focusing on rep compensation is not enough when it comes to generating a healthy, balanced sales metrics scorecard. To attain a comprehensive view into sales performance and its impact on the business, organizations leverage a strong mix of measures, some of which we have highlighted below. 

The following are 3 key sales compensation metrics, over and above rep compensation, that savvy organizations commonly include in their analysis:

1) Plan Effectiveness

Many organizations are used to simpler rep compensation in the initial stages with plans focused on revenue and related commission. As the company grows and takes on more complex business models and practices, the compensation structure tends to take on more intricacy. However, as compensation complexity increases, it is generally difficult to skillfully design ironclad plans that reward the right behaviors without allowing for any drawbacks.

Upon analysis of plan effectiveness, organizations may find that some components are never triggered. This could be because the plan component’s measures in question are impossibly difficult for reps to attain. Alternatively, it could also be that certain geographic territory or product assignments may not allow reps to hit targets that trigger that component. Such drawbacks, if not adjusted to ensure plan optimization and fairness of compensation, are highly likely to demoralize the reps and may ultimately contribute to sales turnover.

On the other hand, lack of plan optimization could grant underperforming reps leeway to achieve targets rather easily. In such cases, the company could suffer great financial losses without reaping any benefit from strong sales performance and associated revenue inflow.

Analyzing plan effectiveness on a regular basis allows businesses to optimize plans such that reps are compensated fairly and appropriately based on performance.

2) Sales Turnover

Research states that it costs businesses more than $115,000 to replace a single sales rep. With such high costs of rep replacement, it is critical for companies to define thresholds for metrics such as sales turnover and continuously monitor trends to ensure rep attrition remains as low as possible.

The first course of order for savvy organizations is to compare rep attrition against industry turnover benchmarks to understand and determine acceptable attrition thresholds.  The second step, which is crucial, is to monitor rep churn. Is there a sudden negative change in the attainment figures of a top-performing rep? Is there a negative change in the productivity of a sales rep? The answers to these questions could signal whether the rep is going through a tough phase, the compensation plan is too aggressive or the rep is searching for another job.

One of the most common reasons for top performers leaving the organization is less than competitive wages. Any employee with a strong performance track record will expect to be compensated accordingly. Should he or she find such competitive wages at another company, bringing his or her talent there is an attractive option for the rep. Ensuring that compensation is fair and competitive is a critical factor in retaining high achievers.

Other factors to increase rep retention and attract top talent include a system for strong assessment, enablement and coaching to support rep success, well-designed career progression opportunities and clear, transparent communication when it comes to sales roles, responsibilities and compensation details.

3) Compensation Cost of Sales

Many companies focus on monitoring the total Cost of Compensation. While the total cost of compensation is a worthwhile metric to track, the Compensation Cost of Sales (CCOS) is a metric that allows businesses to assess whether the return on investment in sales is maximized.

CCOS is the amount of compensation any given company pays its sales organization as a percentage of revenue. It is an efficiency measure that may not prove to be much of an indicator of anything based on a one-time analysis but can be quite telling when compared against industry benchmarks. For example, a high CCOS could simply be a result of a bad quarter when it comes to performance. 

However, when analyzed as a trending metric, the CCOS can hint at an important story. For example, if the CCOS trends higher than the industry benchmark, the business is not maximizing its investment in sales. It could be just a bad quarter, or it could result from non-optimized plans that are eating away at the ROI as it relates to the sales organization.

If the CCOS trends are lower than the industry benchmark, it may prompt questions such as “is the pay competitive” and “do we have enough reps or do we have a lack of coverage in certain territories?”. A thorough analysis of CCOS is an effective way to determine whether the investment in sales drives optimal results for the business. If not, it is a useful indicator of the possible underlying causes of less-than-ideal sales ROI.

Contact InnoVyne Technologies to learn more about how we can help you optimize your sales compensation metrics.

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