Prospecting or existing customers ? What do you focus on in your sales incentive plan ?

Prospecting or existing customers What do you focus on in your sales incentive plan

“Need a sales comp plan that incentivizes prospecting, but does not increase the overall percent for my entire sales compensation. So, we’ll need a plan that pays more for new sales and less (or less over time) for sales to existing customers. Suggestions?”

This recent question was asked on LinkedIn in the Compensation & Benefits section, yet the majority of answers were provided by salespeople.

One of them clearly conveys the feeling from the majority of the respondents :

“As a salesman, what I see here is: “We need a sales comp. plan that makes sales people handle our marketing as well and that doesn’t actually give the sales reps any more money. So, we want something that will reward hunters, punish farmers, and focus our sales force on churning customers in-and-out rather than serving each customer well throughout the life of their partnership with us.” Your sales team will see the same thing when you present this to them. Don’t be surprised if they start to bolt.”

Without more information, it is difficult to evaluate what the market from this company is. Maybe it’s a market ripe for one-off, short-term sales cycles with little repeat, existing customers. In that case, designing a scheme that pays more for prospecting new customers may actually represent a good alignment between the company needs and the employee job focus.

However, these markets are pretty rare. And we all know that it is more expensive to acquire new customers than to grow repeat business with existing ones. So it may be a very short-term tactic to focus on prospecting and new customer acquisition at the expense of caring for the existing customer base.

If that was the Sales Director at my company asking for this kind of scheme and we were in a classic, clients-cost-more-to-acquire-than-to-nurture type of company, I would also recommend against the kind of plan described above. Not to say that the company shouldn’t try to acquire new customers.

But the question seems to imply a shift of burden for the sales force. It takes time and resource to develop the contacts that will turn into new customers, and it seems the company does not want its sales employees to focus as much on the existing customers.

So, in that case, I’d advise two things :

  1. maintain the current scheme (if it is working) and add some kind of quarterly addition focused on quantitative achievements related to new customer acquisition. Yes it will cost a bit more than the current scheme, but you can divert funds from marketing and/or advertising in order to finance this extra. After all, you are shifting workload towards the sales force – they didn’t have to perform these activities before, and now they do – so a little bit of incentive can’t hurt, especially for a sales force. If you don’t compensate them for the extra workload, your sales people will consider they are not getting enough for their effort and will get disengaged (or “bolt”, as described earlier).
  2. implement a strong communication and deployment plan. This kind of change requires a mind shift for your sales force, and you will need to put in place more than just the financial incentive to fully implement it : new processes, new tools, regular communication on why the focus on customer acquisition and what’s in it for all parties (company, sales people), and a clear endorsement from top management. Without these the plan will fail.

What do you think ?

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  1. Great knowledge sharing Sandrine. I suggest, the quarterly incentive amount may be deferred and be released at the end of the year in order to validate the quality of the new clients and to ensure that they are retained and repeated business taken place too.

    • Hi Raja,

      Yes you may defer the payment for the year-end though you have to consider the impact on motivation, especially if the sales cycle is a short one (less than a quarter).

      Alternatively, in order to focus on the quality criteria that you mention, you could pay the incentive on a quarterly basis, but carve a portion (minimum 15% of annual incentive if you want the salesforce to pay attention) out of the overall incentive and link it to new customer quality, or repeat business, with an annual payout.

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