A talent manager friend of mine puts it bluntly: “people do what they’re paid to do.” More specifically, she means people do what they’re incented to do -- especially through bonuses, commissions and other performance-based compensation. It’s attaining payment for achievement that motivates people, especially when that payment is also accompanied by recognition, promotions and status among one’s peers. Base salary is important – but it’s not all about the base.
New Models Demand New Approaches
In sales, businesses see compensation as a way to drive behaviors that benefit the business. On a basic level, sales reps are there to sell, so rewarding them for doing that makes sense. But there are other behaviors businesses want to encourage, too -- and incentive compensation is the way to encourage that behavior.
Until recently that behavior was all about the company -- incenting sales people to sell particular products for a sales performance incentive fund (spiff), for example, or rewarding them for selling into a specific target market the business hopes to crack. These are all very useful and practical in addressing the needs of the business.
Or they were until recently. The advent of what Zuora dubbed “the subscription economy” is altering the way customers pay for the things they buy -- not just in the form of SaaS software, which many of us most closely associate with a subscription economy, but in the form of “real-world” items including fresh fruit, clothing and other consumer items.
Print media pioneered a subscription model, and while that industry is struggling to reinvent itself, other old-school industries have long lived in the subscription economy. Take your car insurance. Your policy is finite, and even after you sign up you can cancel and take your business elsewhere mid-term if you choose.
What does this mean for incentive compensation? It means that it’s no longer enough to reward sales people for their results right now, today. Closed deals are still critically important, but they only start to pay off when the customer renews. In fact, in SaaS deals that involves some configuration and set up services from the vendor at the start of the customer lifecycle, the customer who buys and then doesn't renew actually causes the vendor to lose money.
The flip side, of course, is that keeping customers is not only less expensive that acquiring new ones, it’s more lucrative, even in the short term. According to a study by Avondale co-founders Karl Stark and Bill Stewart, a business that can retain all of its customers by one additional month can achieve an additional 3 percent of annual growth. If it can retain its customer base for four more months, it can attain double-digit growth without acquiring a single new customer.
The Sales Team's Role in the Customer Experience
What does that mean for compensation for the sales team? It means they need to realize that their role now includes much more than just corralling new customers and persuading them to put their signatures on contracts. It means they’re in charge of an important part of the customer experience -- one that will have a direct effect on the customer’s attitude when it comes time to sign the next contract.
Of course, that attitude can be influenced by a lot of things besides the sales rep’s approach: failures in the product or service, indifferent customer service, jacked-up billing or any one of a myriad of failures in the business can upend a customer’s warm view of your business. But that doesn’t mean you shouldn’t encourage sales reps to behave in ways that cultivate a good customer experience through compensation.
Naysayers might argue that the only real way to compensate sales for creating long-lived customers is to look back retroactively at the entire customer lifecycle -- which would then make it impossible to reward sales people in a timely manner. If you look through the wrong end of the telescope, that would seem to be so. But there’s an easier and more immediate way to do it.
Poll your new customers about their buying experiences with your company. In other words, ask your customers about their outlook on your business after they have interacted with your sales reps. Collect that feedback, and build it into your compensation plan.
This has to be done the right way. Be aware that a sales rep offering the survey automatically contaminates the results. Make sure the survey is offered quickly, after the close of the deal, by someone other than the sales rep. Also, make sure that reps know there will be serious, compensation-related repercussions to campaigning for good feedback. Their campaign for good feedback should take place during the sales process, not in the window between close of deal and the arrival of a survey email. And make sure that there’s a system to follow up with customers who don’t respond to the survey, or who offer lackluster responses; they’re good candidates for extra attention from your customer success team.
This will take a little attitude adjustment on the part of your sales reps. They’re used to thinking about the deal today and not the renewal tomorrow. But if you can demonstrate that there’s something in it for them, in the form of a significant percentage of their compensation, they’re likely to come around and start taking the role of your early-stage customer experience ambassadors seriously.