Have you considered how your incentive compensation plans can improve sales forecast accuracy? Probably not. By most accounts, it’s not a good idea to include sales forecasting as an incentive measure. After all, it’s management’s responsibility to ensure that sales reps are updating the sales pipeline and accurately reporting their sales forecast each period. However, consider the relationship between compensation and forecasting by approaching it from the opposite direction. Although your compensation plan probably won’t improve your sales forecast, a good understanding of your forecast can definitely improve how you design compensation incentives. When sales operations professionals and compensation administrators work together to design incentive plans, they often begin by asking questions like:
- How much of our product offerings do we need to sell to successfully achieve our sales quota targets? Is the health of the sales pipeline supporting our goals?
- How has each sales rep performed historically by product sales and by key customer? What is the average sale cycle for comparable deals?
- When is the right time to sell to each customer account, and what is the likelihood these customers will make another purchase?
- Have we set our sales quotas too low and are the quota attainment tiers effectively structured?
- Do we need to raise the threshold built into the incentive compensation plan to push sales reps to drive more revenue?
- Are the accelerators correctly set in the incentive compensation plan to challenge sales reps to sell more while keeping them satisfied with the potential total earnings value?
- How should forecast accuracy affect incentive compensation plan design?
- What can you do to make sales quotas more accurate, even when your sales forecast accuracy is just what it’s always been?
- How about forecast accuracy as a sales incentive measure—if it’s so important to the business, should we incentivize it?