Sales Comp Plan Engagement: Why Calculators Aren’t Enough for 2024
Getting your sales team to engage with your comp plan can be a complex challenge for many organizations. A few tools, such as commission calculators, have been developed for this purpose. By inputting various scenarios, such as the number of sales or the value of contracts, sales reps can use such commission calculators to see how their actions translate into financial rewards.
But as with comp plans themselves, there’s no one-size-fits-all approach. The nature of the sales role, comp plan structure, and sales motion (cycle length, deal size, etc.) significantly influence the accuracy and utility of calculator tools that aim to drive plan engagement.
While commission calculators are common in Incentive Compensation Management (ICM), they do have their downfalls. At Forma.ai, we advocate for a more comprehensive approach that eliminates over-reliance on calculators and utilizes more innovative ways to achieve the desired outcome.
This blog post explores the purpose of commission calculators, where they go wrong, and alternatives that better fulfill their intended objectives.
Why Do Organizations Use Commission Calculators?
Before utilizing a commission calculator, it’s important to have a precise plan for the fundamental purpose it will serve in your organization. While the specifics will be unique to your business, calculators are primarily used for one of two reasons:
1. To help reps better understand the comp plan during rollout
Every organization launches new comp plans a bit differently, likely with many steps and processes involved, making it a gradual rollout. Though methods may vary, the goal remains the same: to ensure everyone in the sales organization knows the mechanics of how they will get paid.
This requires a clear explanation of what behaviors sales reps need to focus on to maximize earnings (and if the comp plan was designed correctly, drive the right outcome for the business).
Leaders often use commission calculators to explain the plan, allowing reps to plug in various numbers so they can see the output and learn how their comp plan works through experimentation.
2. To drive ongoing motivation
Commission calculators are often marketed, both by ICM software providers and by organizational leaders to reps, as a motivational tool. Since humans are motivated extrinsically as well as intrinsically, seeing the earning potential of closing a particular deal can provide extrinsic motivation for the rep to close it.
Reps often use commission calculators to compare potential earnings for when different deals close by inputting each deal’s unique criteria. In this way, calculators can not only motivate, but also help the reps prioritize where they will focus their time and energy (on the deals that would maximize their earnings).
What’s the Problem with Commission Calculators?
Though gaining popularity for explaining comp plan mechanics and motivating reps, commission calculators come with some significant downsides:
- They require reps to spend time inputting data, leading to major distractions.
- Precise configuration is needed for correct use, and many companies fail to deploy them effectively.
Essentially, commission calculators can lead to a form of shadow accounting, disguising a fundamentally flawed process as a positive, motivational tool.
For these reasons, they fail to effectively achieve the purposes they are meant for.
Do commission calculators actually help during comp plan rollout?
When used alongside a thorough communication strategy, calculators can aid in generating excitement about the plan. But in the absence of a thorough communication strategy, which is often the case, calculators are over-relied upon, becoming a crutch for explaining the comp plan. This leaves reps to figure out the plan through trial and error, serving as more of a game than an effective teaching method.
More effective methods for comp plan rollout include:
- Providing detailed documentation and examples.
- Dashboards highlighting key metrics and focus areas. For example, Forma.ai uses dynamic dashboards to best present information to the rep based on their specific incentive structure.
Do commission calculators actually help build motivation and nudge behavior?
Yes, but at a cost. Calculators can be an efficient tool for motivation at organizations where reps close very few deals per year due to large deal sizes. But the vast majority of reps would be making many more calculations, and the motivation built may not be worth the time loss away from selling.
When it comes to motivation and behavior nudging, organizations use one of two types of calculators, each of which have their flaws:
- Type 1 is a calculator that allows reps to see what they could earn on hypothetical sales transactions
- Type 2 is a calculator that automatically pulls in CRM data to show what reps could earn on real open opps
Both types of calculators are demoed to the sales reps or in the ICM buying cycle as a helpful and easily accessible tool. However, they are rarely used in practice as they are challenging to configure, often tedious to use, and their open-ended nature results in significant time spent.
For comp plans with gates, accelerators, or complex plan components, these calculators require training for the reps to use effectively. Even with training, increased complexity results in increased time lost to trial and error, and more issues with mapping in the right data.
There are more effective and efficient ways to build motivation and nudge behaviors that don’t require spending time on trial-and-error computing.
An Alternative to Commission Calculators for Driving Engagement
Consider a loyalty app for your favorite store or coffee shop. It doesn’t require you to calculate different scenarios manually. It’s built in a way that clearly shows your current standing, and how many more points you need to earn to get a reward.
Similarly, Forma.ai integrates the outputs of a commission calculator in a more intuitive and specific manner, removing the ability for it to be open-ended. For example, showing potential earnings at different commission tiers without the need for manual calculations.
We also aim to motivate reps individually, at a more granular level. These more tailored insights can be achieved by embedding milestones into your comp plan. This is one way our customers have had success in generating comp plan engagement, as milestones are a great way to nudge behaviors.
For example, if you have milestones for 50% on booking and 50% on invoice, the Forma.ai dashboard can show the rep’s progress toward these milestones. Here, the rep has half of their incentive dollars tied to ensuring that an invoice is delivered and received by the customer. This motivates reps through the psychological principle of loss aversion theory, wherein the pain of losing is twice as powerful as the pleasure of gaining.
In the video below, Forma.ai CEO, Nabeil Alazzam, briefly explains why the rep dashboards are a fan-favorite feature in Forma.
Replace Commission Calculators with Innovative Solutions
In conclusion, calculators are not the standalone solution for effective sales compensation plan adoption and engagement in 2024. A more nuanced approach, combining intuitive interfaces and tailored insights, can significantly enhance plan understanding and motivation.
At Forma.ai, we’re committed to developing innovative solutions that go beyond calculators, providing a more engaging and effective experience for sales teams. Request a demo to see our rep dashboards in action.