Believe it or not, the new year is right around the corner– and that means it’s time to plan your sales compensation strategy for 2024.
Considering the volatility that most companies faced throughout 2023, you’re probably pondering a lot of significant changes to the way you design, execute, and manage your sales comp programs over the course of the next year.
But, in this era of constantly shifting market conditions, it can be difficult to know what changes will best set your sales organization on the path towards success.
Don’t worry, we’re here to help! In today’s post, we’re offering our top seven tips for a complete compensation transformation in 2024.
Compensation Transformation Tip #1: Align your sales comp plans with your business goals.
We get it: with the holidays right on your heels and a new year right behind them, you probably want your 2024 sales comp strategy in order as fast as possible. But, don’t make the mistake of neglecting an all-important assessment– that is, an assessment of overarching business goals and how well they align with your existing comp strategy. This is an important step to take every year, but even more so after an extended period of economic volatility.
Many companies are zeroing in on gross profit margin and other efficiency indicators as they seek to offset previous slowdowns in revenue growth. If efficient growth has become your company’s primary goal, you need to assess your comp plans and uncover any points of misalignment. For example, paying a high commission rate on a product that drives less profit than your other offerings might contradict an efficiency-first strategy.
Recommended reading: 23 Quotes to Guide Your Sales Compensation Planning Process
Compensation Transformation Tip #2: Emphasize customer retention and other expansion metrics.
2023 saw an extended slowdown in new business revenue for many SaaS organizations. Market data shows that the proportion of ARR earned from new business has decreased from 61.4% in 2020 to 52.9% in 2023. Meanwhile, the portion of ARR derived from expansion (upsells, cross-sells, etc.) has increased from 29% to 36.3% over that same time period (source).
Whether or not your business is struggling to generate new business, these trends prove the importance of emphasizing expansion metrics across your comp plans. Make sure you define what retention, up-selling, and cross-selling look like for your organization in specific and measurable terms. Metrics to prioritize may include:
- Renewal rate
- Upsell rate
- Churn rate
- Average deal size
- Average contract value increase
- Products sold per customer
- Customer lifetime value
Of course, an effective sales compensation transformation doesn’t mean shifting completely from new business to a retention-driven approach. But, the more you incentivize expansion across your 2024 comp plans, the better equipped your business will be to handle prolonged stages of volatility.
Recommended reading: How to Develop a Winning Sales Compensation Philosophy
Compensation Transformation Tip #3: Personalize your sales incentive programs.
Personalizing sales incentives is a difficult task for a number of reasons. For starters, there are operational challenges that come with hyper-personalized comp plans, especially for larger sales teams. And, the more personalized your comp plans become, the more you risk complaints of inequality and unfairness– both real and perceived.
With all that being said, an element of personalization is still critical to a successful sales comp strategy. It’s likely that you already differentiate your commission plans by role. For example, an AE comp plan will look different than an SDR comp plan because each role has a different relationship to the sales cycle.
But, considering the importance of satisfactory sales compensation— salespeople are 50% more likely to leave their job if dissatisfied with their compensation (source)— you should consider experimenting with additional forms of personalization in 2024.
To start, you might implement a range of incentive options that qualifying sales reps can choose from. A sales rep might prefer additional vacation days or benefits over a small monetary incentive, for example. This sort of change may seem small, but it’s significant. And, giving sales reps more of a say in their own compensation will only benefit your organization in the long run.
Recommended reading: 5 Sales Quota Setting Methodologies Proven to Generate Revenue
Compensation Transformation Tip #4: Enhance your sales comp strategy with AI.
At this point, it’s impossible to discuss sales compensation transformation without discussing artificial intelligence. AI is currently being used or explored by 77% of organizations (source), and the ability of AI-powered tools to enhance your sales comp strategy has evolved leaps and bounds over the past year alone.
In fact, you can revolutionize nearly every facet of your sales comp strategy with the help of the right tools. Comp plan design can become a streamlined, easy-to-manage process that takes seconds rather than weeks. AI can automatically gather and deliver data-driven insights that continuously improve your commission plans. You can also leverage AI to communicate complex formulas to reps in language they can understand. The list goes on.
You don’t need to go all-in on AI, as the technology can have its pitfalls if it’s used improperly, but at this point it’s a non-negotiable to at least enter 2024 with a concrete plan for how you’ll use AI for sales planning and execution.
We’ve covered AI extensively over the past few months, so we’ll move on to our next tip— but if you want to learn more about AI-powered compensation strategies, check out these articles:
- AI Won’t Replace Sales Comp Managers: Here’s Why
- AI vs. ML and the Implications for Sales Commission
- The Risks and Considerations of AI for Commission Accounting
Compensation Transformation Tip #5: Involve a broader committee of key stakeholders.
As the landscape of sales compensation becomes more nuanced, one thing is for certain: it’s no longer possible for finance or RevOps teams to perform sales comp planning in a vacuum.
Sales compensation isn’t just about getting the numbers right— it’s about understanding business objectives, employee needs and preferences, market conditions, and how each of these variables impact one another. To do that, you’ll need to involve more stakeholders in all major sales comp decisions in 2024.
Each department you involve will offer unique insights that are vital to the development of compensation strategy. Obviously, RevOps is typically best equipped to handle comp plan design. But, sales leaders must inform that process with insights into the real-life perspectives of their sales employees. Meanwhile, HR will provide valuable input into fairness and equity considerations, along with insights into how comp strategy is affecting talent acquisition. And, last but not least, finance teams must have buy-in from an implementation and administration perspective.
If you don’t have representation from each of these key functions involved, your compensation strategy may fail you.
Recommended reading: How to Motivate Sales Managers With Compensation Strategy
Compensation Transformation Tip #6: Leverage a mix of individual and team-based incentives.
Traditionally, incentive compensation has focused on individual efforts and achievements. However, as the business landscape evolves— especially if your company has nuanced, multi-stage sales cycles— so too should your sales comp strategy. By 2024, it would be prudent to invest time and resources into crafting compensation plans that acknowledge the collective success of the sales team along with individual performance.
For example, let’s say you implement an incentive that’s triggered when the sales team collectively exceeds a certain revenue number. The individual sales rep who closed the deal that crossed that threshold will still be individually rewarded— but the shared reward will boost morale and increase future motivation for the whole team.
Team-based incentives and accelerators also help to foster a sense of collaboration across the sales team, which is more important as sales cycles grow longer and more complex. Instead of incentivizing reps to compete with one another, team-based rewards will incentivize them to help each other with open opportunities, share information, and view every win as a shared victory.
Recommended reading: Sales Comp 101: Using Stephen Covey’s Circle of Influence
Compensation Transformation Tip #7: Incentivize every important touchpoint in the deal lifecycle.
To expand on our last point, the increasing complexity of the modern sales cycle has highlighted the importance of the many touch points that lead to successfully won deals.
In the past, it was enough to compensate sales reps based on objective-based metrics like meetings booked and revenue generated. Now, achieving those objectives depends on so many nuanced steps, spanning across many different channels and roles. If you fail to incentivize these micro-wins and behaviors throughout each sales cycle, you’ll fail to drive the the big results you’re ultimately chasing.
Start by designating a value to each touchpoint in your sales cycle, from lead response time to post-sale follow-up. Consider assigning rewards for the most critical of these touchpoints— and, throughout the year, monitor the extent to which these rewards motivate the right sales behaviors, and adjust your plans accordingly.
Recommended reading: The Impact and Administrative Overhead of a Bad Sales Commission Process
As you plan for 2024, adaptability and consistency should be top-of-mind when it comes to sales compensation planning. Recent years have shown us how market volatility can have an immediate and major impact on the effectiveness of your comp strategy. The tips for compensation transformation we covered today will help you build resilient, consistent comp programs that satisfy your sales reps and support business goals no matter what conditions you face.
Of course, many of the changes we covered in today’s article wouldn’t have been possible a decade ago. Luckily, sales compensation technology has evolved significantly. With the right tools at your disposal, it’s now possible to implement more nuanced sales comp structures and objectives without making your plans harder to understand, design, or implement.
Spiff is a new class of commission software that combines the familiarity and ease-of-use of a spreadsheet with the power of automation at scale- enabling finance and sales operations teams to self-manage complex incentive compensation plans with ease. Spiff is designed to facilitate trust across organizations, motivate sales teams, increase visibility into performance and earnings, and ultimately, drive top line growth. The platform’s intuitive UI, in-depth reporting capabilities, and seamless integrations make it the first choice among high-growth and enterprise organizations.