How to Balance Sales Compensation with Quota

Is your business too focused on short-term sales goals? That may be the case this year as 38% of sales managers report that their company’s top focus is increased competition.  This situation may drive sales managers to decide between achieving high sales quotas and delivering customer service that ensures client retention. The latest research shows a correlation between quota emphasis and high variable compensation. These findings have implications for how to manage sales teams and for sales compensation structures.

How do sales departments prioritize goals?

The sales manager’s attitude about priorities typically sets the path for the sales department. Sales managers have a big impact on how their team members think and act. A new study discussed in the Journal of Business-to-Business Marketing finds that managers shouldn’t simply focus on urging their sales team to achieve or exceed quotas. The research, funded by the University of Central Missouri, is based on 227 B2B sales professionals.

When quota achievement is the focus

Not surprisingly, in an organization where the quota achievement is the focus, there’s a price to pay. In the long term, the focus will impact the sales staff and client retention.

Sales staff impact

The pressure to always be reaching quota takes a toll on the sales staff. In general, around 40% of sales professionals we surveyed reported being stressed in the past year. 32% of those sales reps are actively seeking a new sales job. That’s an outcome that sales management should try to avoid.

Customer service impact

Additional organizational costs come in the form of damaged customer relationships. Because sales reps are so focused on closing deals, due to their sales compensation structure, they don’t check in with customers frequently enough. Over the long term, this neglect can be expensive for the organization. Ignored customers are likely to be scooped up by an attentive competitor.

Reps are then left with a bigger gap to fill. And they know that the cost of acquiring a new customer is much higher than maintaining existing clients.

The connection to the sales rep mindset

Researchers report that when the manager obsesses about the bottom line and develops a win-at-all-costs mentality, most reps will too. This correlation was noticeable regardless of the B‑to‑B vertical.

However, researchers point out that not every sales rep became part of the “trickle-down” effect. Some reps have specific traits like “honesty.” And these traits can be so strong in some people that they don’t follow the manager’s directives.

 To learn more about how an existing employee or a candidate for a position will behave on the job, ask them to take a behavioral assessment. For example, the TeamTrait^TM assessment platform scores likely job behavior and also rates sales skills and traits.

What is the link between sales compensation structure and quota focus?

Most organizations carefully set sales department compensation to include a mix of fixed and variable pay. The variable pay portion may come through commissions, bonuses and accelerators. And sales reps can achieve some or all the variable pay when specific quota percentages are reached.

The pitfalls of high variable compensation

The University of Central Missouri research uncovered a correlation between pay and the focus on quota achievement. Specifically, when higher percentages of pay are variable, sales professionals will typically spend more of their time and effort closing new customer deals.

Researchers recommended that business owners and sales manager review their sales compensation structure. There are instances when a high variable compensation rate makes sense. In a rapidly growing vertical where new products are being launched, businesses will want to increase market share. The business also needs to secure testimonials from customers as proof that their new product works.

How to appeal to sales rep motivation

However, sales managers should keep in mind that not all reps are motivated solely by money.  To understand what does motivate each team member, they should review behavioral assessment data, especially in the context of sales compensation. In doing so, they will learn that some reps are more motivated by the opportunity to be creative or to work with key accounts. When managers make assignments personalized to a rep’s natural traits and strengths, quota achievement may improve, along with customer service.