With a new year around the corner, it’s time to start thinking about your sales compensation plans for 2023. If you’re feeling overwhelmed, we don’t blame you. A volatile market and economic downturn make it tough to effectively plan— tough, but not impossible.
We recently sat down with Chris Semain, Principal and Tech Practice Leader at the Alexander Group to discuss the future of sales comp.
We came away with six key considerations to keep in mind while preparing your compensation plans and processes for 2023. Let’s dive right in!
1. Be cautious, but don’t let the worst case scenario drive your business.
2022 has seen an interesting mix of market conditions. The business world found a renewed hope that we were finally done with Covid-19– returning to in-person events and making our way back to the office. But toward the middle of the year we began to see talks of a recession and businesses began to announce mass layoffs.
As we start planning for 2023, the only thing we’re certain of is that we’re in rocky territory– some organizations more precariously positioned than others. But as we spoke with the Alexander Group about planning for a new year, they made one thing clear: It’s important not to let every change in the market dictate your business strategy.
The worst thing you can do during a downturn is to make brash decisions. It makes sense to be cautious, but if you need to overturn your entire business in order to “buckle down”, you could be left with a false sense of security and an onslaught of unintended consequences— especially if there’s a sudden rebound.
“When a recession hits, the first order of business is to not freak out or abandon your principles, your strategy, and what you’re trying to accomplish in the market,” says Semain.
Any changes you should make to comp plans should be thoughtful, not reactionary. “Pivoting your focus mid-operating period rarely goes over well with the sales force.”
Recommended reading: The Definitive Guide to Recession-Proofing Your Sales Team
2. Look toward inbound demand and pipeline velocity for signs of life.
The signs of a downturn are recognizable– business slows, closing deals becomes more difficult, and analysts everywhere keep close tabs on market conditions. One glance at your LinkedIn feed and you’ll see layoffs, slower hiring, and expert recommendations for handling economic hardship.
But, we were curious. How do businesses know when they can return to business as usual? If you continue to operate as if you’re in a downturn, you may unwittingly hold your team and business back from reaching their full potential.
After our conversation with the Alexander Group, we came away with an action item. Regularly review inbound demand KPIs like lead and MQL volume, keep your eye on pipeline velocity metrics, and watch for growth trends in the market. This will provide a clear signal that you can afford to take more risks and allocate resources toward acquisition channels again.
3. Don’t neglect retention after an upswing.
Something else we were happy to confirm? Retention is important in good times and bad times.
Downturns don’t just accentuate the importance of retention, but also sustainable growth. Even during an upswing, retention is a critical metric— and needs to be treated accordingly. “Retention should be paramount regardless of where we are in the economic cycle,” says Semain. “Companies with high churn aren’t sustainable.”
4. Make sure you’re clear on GTM goals before jumping into comp plan design.
Our conversation made it clear just how important it is to remember the basics of comp planning. Whether you’re a brand new organization or an established company with thousands of reps, the Alexander Group recommends determining the goals associated with your GTM strategy— and what they mean for your sales team– before jumping straight into comp plan design.
Before getting started, you should be able to answer questions like:
- What behaviors do we want to incentivize in our sales force?
- What behaviors aren’t we seeing today, that we need to be driving more consistently?
- Are there any strategic shifts taking place that will likely mean augmenting our plans?
“It’s really a go-to-market and job discussion before you get into the tactical nuances of comp,” says Semain.
5. A good comp plan is ineffective without clear ROEs.
Our conversation with the Alexander Group uncovered another important sales comp lever that isn’t always talked about– ROEs or Rules of Engagement. Sales commission and ROEs are two sides of the same coin. Your comp plan is what your reps can expect to earn and your ROEs are how you enforce important sales processes that ensure the right people get paid.
An effective commission plan is specific, actionable, and well-communicated— both the plan itself and any additional resources. Use ROEs to add context and color to your comp plans. They should cover things like account ownership, territories, SLA’s, and who gets credit for opportunities. This helps reduce sources of friction and ambiguity, and ensures everyone on your sales team is operating on the same page.
Recommended reading: Communicating Compensation Changes to Your Team: A Guide for Managers.
6. Strike the right balance between simple and complex comp plans.
The last key takeaway to bring with you into your 2023 planning sessions is that building an effective comp plan is a balancing act.The key to success is creating a plan with a limited number of measures, so that it’s clear which behaviors are being incentivized, but complex enough to incorporate nuanced aspects of your sales process– like business segments, products, contract types, and length of sales cycle.
“Too simple of a plan and you’re not going to drive all the behaviors you want. At the same time, if you have ten priorities and they’re all number one, you’re going to wind up with a plan that your Ops team won’t be able to administer, and reps won’t be able to understand,” says Semain.
It’s also a good idea to consider any technical limitations or constraints. “You need to be mindful of what you can operationalize in your environment,” says Semain. For example, if you manage comp with spreadsheets, a complex and detailed plan is likely off the table. , But, a larger team with a dedicated tool or commission software is likely able to handle plans requiring more flexibility.
Recommended reading: The Top 10 Reasons Your Commission Spreadsheet Will Fail You at Scale
There’s no magic formula for effective comp planning. It all depends on your organization. Regardless, keeping these considerations in mind as you head into 2023 should help you access and enable more clarity around your comp plans, so you can stabilize your team during times of uncertainty.
Spiff is a leading sales commission platform that automates commission calculations and motivates teams to drive top-line growth. With a combination of an intuitive UI, real-time visibility, and seamless integrations into current systems, Spiff is the first choice among high-growth businesses. The platform enables finance and sales operations teams to self-manage complex incentive compensation plans and provides transparency for sales teams.