Why Your Goal-Based Sales Compensation Plan May Be Penalizing Large Volume Territories
October 31, 2022
In today’s biopharma landscape, nearly all sales forces exhibit some degree of volume differences across territories. One of the best ways to ensure equity despite these volume differences is to utilize a goal-based sales compensation plan; however, goal-based plans actually place large volume territories at a disadvantage above goal. This disadvantage is notable because although it is important to ensure all territories are engaged, motivated and driving sales, it is especially important for large volume territories since they contribute so much to national sales numbers. In this blog post, we will explore why goal-based sales compensation plans place large volume territories at a disadvantage above goal and what you can do about it.
Ability to Grow Above Goal
How do goal-based sales compensation plans place large volume territories at a disadvantage? Consider past sales, goal, and sales at 105% attainment for two territories in a sales force with large volume differences across territories:
Larry’s large volume territory has less potential than Laura’s small volume territory, so his goal is set closer to his past sales level while she is expected to grow quite a bit above her past sales level.
Let’s take a closer look at performances above 100% attainment. In order to achieve 105% attainment, Larry must grow more than he needed to grow above his past sales to reach goal (417 TRx vs. 340 TRx, respectively) while Laura only needs to grow a fraction of how much she needed to grow above her past sales to reach goal (240 TRx vs. 800 TRx, respectively). Even though Larry’s large volume territory has much less potential than Laura’s small volume territory, he must achieve much higher increases in sales to reach attainments beyond 100% solely because his territory has high volume.
Goal Attainment and Equity
This inequitable burden on large volume territories to achieve attainments above 100% is a mathematical consequence of basing performance on goal attainment.
As defined in our SCOR³ES® criteria of sales compensation plan effectiveness, a sales compensation plan is only truly equitable if every sales representative has an equal opportunity to earn the same level of compensation. While large and small volume territories have this equal opportunity below goal, large volume territories do not have the same opportunity as small volume territories above goal—even if goals are set accurately.
The consequences of this inequity are considerable as it often causes representatives in large volume territories to disengage and slow their selling efforts above goal, ultimately costing the company sales.
Ensuring Equity to Large Volume Territories
If goal attainment is limited in its ability to capture the relative difficulty large volume territories face in growing above goal, then how can sales compensation plan designers ensure equity so that large volume territories stay engaged and drive sales?
There are several solutions that can be taken; the solution that is chosen depends upon the company’s corporate compensation philosophy. For example, different payout curves above goal can be designed for different groups of territory sizes, though it is critical to ensure that these separate payout curves do not exacerbate inequities. Another solution is a creative approach to measuring performance against goal that considers base period sales. We can help you determine the best solution for your product and sales force based on your company’s corporate compensation philosophy to ensure equity for all members of your sales force.
Conclusion
Although goal attainment is one of the most equitable methods of measuring a sales representative’s performance, it cannot adequately capture the relative difficulty large volume territories face in achieving sales above goal. Because a single percentage of attainment for a large volume territory always requires more sales than that of a small volume territory, large volume territories do not vary in attainment as much as small volume territories and thus are at a disadvantage in achieving attainments above 100%. We can help you design a sales compensation plan that will ensure that the largest contributors to your national sales levels are engaged, motivated and driving sales with the highest level of effort for the entire plan period.
