Why Sales Compensation Plans Fail

Based on K&A's 30+ years of experience developing, and executing, sales and marketing plans, K&A believes that most companies do not understand how to successfully develop, and execute sales compensation plans.

Here are the top 5 reasons that most companies experience such a low success rate with their sales compensation plans, based on K&A's experiences:

  1. The company does not align its sales compensation plans with the management team's key strategic or operational goals.
  2. The sales goals that are established for each sales resource are not well thought out, and they do not encourage "above plan" performance. Additionally, the company does not plan, and track, its sales effectively. One example is not managing its sales to its new customers differently than its sales to its existing customers. All of these factors results in the individual sales goals, or sales quotas. that are established, to be unrealistic, and consequently, un-obtainable.
  3. The company does not review, and effectively revise, its sales compensation plans, and sales goals annually. Many times the sales compensation plans are verbally communicated to the company's sales staff, and/or, are changed during each fiscal year. 
  4. The company underestimates the amount of sales pipeline that is required to achieve its sales plans. Additionally, it has not defined optimal sales processes for each target market. 
  5. The company does not provide timely audit reports that confirm that all sales bonuses, and commissions, have been correctly calculated.

Sales Compensation Plans typically can have a fixed annual component (salary), and they can also have several variable components that payout if certain sales performance metrics are achieved during the fiscal year.