When to change sales compensation plans mid-year
I’ve written about when (and how) to change sales compensation plans under the best circumstances. However, sales is an imperfect industry! Sometimes you need to make on the fly changes to your compensation plans. Here are some instances where it’s worth reconsidering your current compensation plan:
There have been a few economic downturns in the past couple of decades, including the COVID-19 pandemic. Each time, we’ve seen spikes in unemployment, decreases in sales, and tightened budgets. All of these factors contribute to missed quotas. There are several changes you make to compensation plans during tough economic times, but the simplest is decreasing quota. If your sales team isn’t going to hit their quotas, then you run the risk of losing your sales team during an already tough time to hire. It might hurt your sales in the short term but will help your team in the long run.
A drastic change in the market
Have you ever had a competitor go out of business? I have and it’s a weird experience. All of a sudden your pipeline deals where you were competing against them seem like sure things. You can go through your CRM and find all the times you were told, “We use XYZ Company” and call them with a special offer.
There are a lot of different circumstances that change your entire industry. A new competitor hits the scene and starts taking away all of your business. A new law is enacted requiring public companies to use a tool like yours. A major data provider changes their terms of service. If you change your compensation plan every time one of these things happened, you’d be swapping it out every couple of months. However, if it has a material impact on your sales (positively or negatively) you might consider a change.
I’ve been a part of several acquisitions. One of the largest mistakes that I see is when an organization doesn’t try to quickly align the newly merged sales team’s compensation plans. If one plan has been working very well for one of the companies, it could be worth changing everyone to that plan. The worst thing you can do is not even think about it and try to keep it ‘business as usual’.
The average tenure of a VP of Sales has continued to drop year over year. In 2017, it was down to 19 months. That means that every year and a half your company is likely to bring in a new sales leader. With new sales leaders come new sales methodology and new compensation plans. While it’s not advisable to immediately come into a new org and make sweeping changes, each sales leader has their own preferred compensation plan style.
Here’s an example where you might consider increasing sales quotas. If your team recently debuted a new product that improves your average contract value, grows your total addressable market, or increases your close rate, you can look at either changing overall quota or creating a product-specific quota or commission rate.
I can speak directly to this one. I once rolled out a new plan to my SDRs in 2017 that was so bad I lost about half the team because their earnings fell from $75k/year to about $50k/year. I realized it about 2 months into the new plan but dragged my heels and waited another 4 months before making a change. It took my team another year to totally recover. If I had acted a little more quickly in changing back to the old plan or rolling out an entirely different plan the damage would have been mitigated.
With all that said, the ‘how’ remains the same from my previous post. Here’s the quick version:
- Understand the plan yourself
- Roll it out to everyone all at once
- Explain the why
- Practice explaining it
- Prepare for questions
- Give your reps a way to track their attainment and commission
For whatever reason you make changes to your sales compensation plan, it’s always important for your reps to entirely understand their plan and how much they’re making in real-time. QuotaPath helps your team get a full understanding of their earnings and the details of their quotas and is free to use.