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Iceberg Blog

How to Incentivize and Motivate Sales Reps

Posted by Taft Love
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Taft Love
One of the questions we're often asked is, "what are some best practices for motivating my sales reps?" One of my favorite articles suggests that there is no one right way to motivate an entire team—different types of salespeople need different forms of motivation (forgive the Wayback Machine link). While I agree with this sentiment, "it depends" doesn't satisfy.
 
Whenever I talk to leaders — especially in startups — about sales rep motivation, I find that few have thought about coordinating sales incentives and company goals. Regardless of personality types, motivated teams are likely to fail if their incentives are not in line with the strategic goals of the organization.
 
While sales leadership is often the ultimate decision maker when it comes to sales team incentives, operations should have a seat at the table. As a revenue ops leader, your guidance may mean the difference in a quality plan and one that fails.
 
Below are three examples of misalignment that can negatively affect a company’s ability to maintain steady growth and achieve goals.
 
Monthly Quotas
Monthly quotas are a great choice for many businesses. However, there are times when a monthly quota cycle can inhibit growth. A client recently asked Iceberg to help them plan incentives. The VP Sales brought us in because she had some scar tissue from a previous company that got this wrong.
 
The VP worked for a SaaS (Software as a Service) startup for two years as director of sales. The company started out selling to small businesses. This meant short sales-cycles and lots of small, transactional deals. Their success led to funding, which meant more aggressive sales goals that required selling to midsize and enterprise companies.
 
Her boss raised quotas in anticipation of bigger deal sizes, but the quota cycle was not extended. Her team was faced with a tough choice: close a few extra small deals each month (and get paid), or spend 60-90 days filling their pipelines with big deals (but not getting paid).
 
Despite having a great product and enjoying early success, the company went out of business. Her leadership's failure to adjust the quota cycle created a situation where the sales team had little incentive to do what was best for the company.
 
This may have been avoided by transitioning salespeople to a quota cycle that matched their new sales cycle. Paying salespeople draw represents some risk, but it’s far less risky that misaligned goals and incentives.
 
Minimum Payout Threshold
Many inside sales teams require that salespeople attain a certain percentage of their quota in order to get paid. I’ve seen companies set this “pay cliff” anywhere from 25% to 75% of quota.
 
Creating a pay cliff is reasonable. It saves the company from paying commission low performing salespeople. But a pay cliff that is set too high can create an incentive to “sandbag” deals.
 
If a salesperson knows that he is unlikely to reach a 70% pay cliff, then it is in his best interest (financially speaking) to slow a few deals down. He knows that there is nothing to lose by delaying the rest of his pipeline until next month, and it increases the chances of being paid next month.
 
As a one-off, it may not be a big deal. But if delaying deals becomes common practice, it can have a devastating effect on a company. Choppy revenue looks bad to investors and can make accurate forecasting nearly impossible.
 
Accelerated Commission Tiers
Accelerated commission tiers are an excellent way to motivate salespeople to exceed goals. Unfortunately, they can also become a strong incentive for your salespeople to intentionally delay deals.
 
Consider the following payout structure:
0-50% of Quota - 0% commission
50-100% of Quota - 8% commission
101-150% of Quota - 14% commission
151-200% of Quota - 20% commission
 
This type of compensation schedule is common, especially at SaaS companies. It’s a great way to reward your top performers and avoid paying for poor performance. But if your company is small or your sales aren’t yet predictable month to month, it can backfire.
 
Like pay cliffs, the structure above creates a strong incentive for your team to intentionally delay deals. If a salesperson is unlikely to achieve 101% of quota, then she can make more money by stalling every deal after achieving 50% in the hopes of reaching 151% next quarter.
 
When a salesperson stands to make more money by having 0% quarters followed by 200% quarters, you may have a problem. This creates a strong incentive for uneven performance, which can be bad for some companies.
 
For most companies, steady growth is more appealing than choppy growth. You should find a way to incentivise consistency. I like the idea of an accelerated commission structure that also rewards consistency instead of strong one-quarter performance.
 
The Takeaway
Never force your salespeople to decide between what’s best for the company and what’s best for them.
 
The aforementioned sales management practices are not necessarily bad. In fact, they are fine for most companies. They only represent a problem when sales leaders fail to consider whether their incentives are in line with the company’s goals.