What is the Revenue Impact of a Good Sales Compensation Plan?
We all know a good sales comp plan is important in driving results. We’ve all heard the importance of re-evaluating your comp plan regularly, and keeping it closely tied to new business objectives, and monitoring how changes impact performance at the rep level, and so on and so forth.
That being said…all that can be a lot of work. Sure, automation can help make it easier. Even then, is it worth it? What is the actual revenue impact of optimizing your comp plan, versus all of the other things you could be doing with your time?
Business school researchers set about answering this question in 2011. Sanjog Misra at UCLA and Harikesh Nair at Stanford published the study “A structural model of sales-force compensation dynamics: estimation and field implementation” in the journal Quantitative Marketing and Economics. Working with a Fortune 500 company, they started by looking through all of the sales and comp plan data at the company. They estimated that the company could increase sales by 8% through a set of relatively straightforward actions, most notably eliminating caps on earnings, and eliminating ratcheting based on past performance, both of which were demotivating reps.
The company implemented the recommendations the following year, and revenue rose by 9%, translating to about $12 million in incremental annual revenue.
Is spending time on your comp plan worth an incremental revenue increase of 9%? If your comp plan is giving you a stress ulcer, book a demo with Palette to learn how we can help.
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