Does Your Sales Commission Plan Reward the Right Behaviors & Results?Posted by dhoward on Tuesday, July 30th, 2013 in | Leave a reply
A couple of years ago while in a National VP of Sales role, I embarked on an interesting project to evaluate sales commission plans and their impact on sales performance. As the company grew exclusively through acquisition, the existing sales commission plans were carried over until we were managing 10 different plans. The plans ranged from a flat “pay per move-in” model to a percentage of revenue model. In evaluating the sales results it was clear that the rewards of the commission plan absolutely drove performance – positively and negatively. One of the worst plans I came across capped the commission plan at four move-ins! How crazy is that – to stop paying the sales person just at the point that created growth. Not surprisingly, that community averaged four move-ins per month and did not grow their occupancy. Every once in a while the regional sales director would plead to raise the cap and the sales team moved in 9 or more units but the operators thought the commissions were too high and returned to the original plan.
The reality is that there is not one single cookie cutter commission plan that is right for every community or company. The plan should be based on your occupancy and the behavior & results you want to reward to improve sales performance. If you have a lot of vacancy, a volume plan that rewards high move-in volume by escalating the commission as the sales team hits higher thresholds is a good choice. If your occupancy is fairly stable and your goal is to drive revenue, a commission plan that pays out a percentage of revenue (base rent, level of care, community fee & second occupant) will align your sales & operational goals and discourage discounting. To retain top sales talent in communities that typically run at 100% occupancy, a stabilization commission is important to ensure that your sales team will be rewarded for maintaining a robust waiting list and backfilling all move-outs so there are no days of lost revenue.
Other considerations I have come across include a sister community bonus or a shared commission pool in markets with two or more related communities that while fighting for their commission dollars will undermine each other to close the sale. If you want sale cooperation and collaboration, you usually have to pay for it! Finally, with full communities where my goal is to drive revenue, I have offered “kickers” if the sales team resisted using “pay-per-move-in” referral agencies which would erode rate of up to 70% of one month’s revenue.