Structure Your Sales Compensation to Drive CPG Growth
In the highly competitive CPG food and beverage sector, a strong sales team makes all the difference. These professionals perform the very necessary task of growing your business and market share. That's why strategic sales compensation helps motivate their performance while aligning sales initiatives and goals with your broader business objectives.
Additionally, a well-structured compensation plan attracts top talent and keeps high performers happy. In a sector with such tight margins, however, budgeting for this extra compensation means striking the right balance between paying your sales team what they deserve and maintaining your company’s overall financial health.
Understanding the Basics of Sales Compensation
Find the sweet spot between risk and reward with a sales compensation plan that uses one or all these components: base salary, commission and bonuses. Each facet plays a distinct role in growing food and beverage businesses, including reducing staff burnout. But the unique needs of your business may make one structure more attractive than others. These are some examples of sales compensation plans, including their benefits to emerging CPG companies.
Base salary plus commission. This combination offers a fixed salary with higher pay based on sales performance. It provides security while incentivizing sales.
Straight commission. This completely performance-based model ties earnings with individual sales. Top performers earn more with this model, with their pay directly relating to company revenue.
Profit sharing. Attaching sales compensation with overall company profitability encourages team cohesion. This approach focuses on making sales and reducing costs to keep company profit levels higher.
Tiered commission. In this sales compensation plan, sales representatives earn increasing commissions when they meet or exceed certain thresholds. These models promote continuous performance improvement and never cap potential earnings.
Setting Goals for Your Compensation Plan
Driving your business forward requires setting strategic, achievable goals with a sales compensation plan that sparks excitement with your team. These goals should closely align with your overall business objectives, and well-chosen key performance indicators (KPIs) help you measure them.
KPIs for sales representative goals typically follow SMART parameters — specific, measurable, attainable, relevant and time-bound. Some effective KPIs include the total sales volume, customer retention rates and average order size, depending on your CPG food and beverage business’s model and objectives. Use the following tactics when choosing the KPIs for your company:
Assess your business’ needs. Determine what your company needs to grow, such as new customers, higher sales or better market penetration.
Evaluate your sales processes. Knowing what makes sales happen helps you identify where your sales team can influence measurable results.
Align KPIs with your goals. Choosing KPIs that contribute directly to wider business goals helps you better meet specific, relevant objectives.
The Role of Business Goals in Structuring Compensation
Your overarching company goals form the foundation of your sales compensation system, helping you incentivize different aspects of your sales representatives' performance. For instance, if your goals demand an increase in overall revenue, you might set commission rates higher for larger deals in your sales operations. If, however, you want to encourage long-term business relationships or introduce new lines, you might structure sales compensation to cultivate deeper bonds with clients or prioritize certain products.
In that regard, setting strategic goals that align sales compensation with SMART KPIs for sales performance metrics equips your teams to meet and exceed their targets. Harmonize your KPIs so they help move your business toward its desired objectives using these steps.
Clearly define objectives. Know what you want to achieve before you set KPIs and sales performance metrics. Outline sales operations goals clearly, and use them to inform how you select KPIs.
Specifically set metrics. Sales metrics should reflect both performance and influence — both within your team's control. For instance, you want to increase average transaction size, so you offer individual sales representatives bonuses for upsells and cross-sells.
Regularly review KPIs. Changing tastes often leave CPG food and beverage businesses at the mercy of trends. As those trends change, your KPIs should change as well. This means periodically reviewing KPIs involving your sales compensation plans and adjusting them as needed due to changing business objectives and market conditions.
Clearly communicate with sales teams. Help each sales representative on your team understand the KPIs you use so they know how to improve individual performance. Likewise, transparency in your sales compensation plan helps further motivate teams and inform their efforts.
Designing the Compensation Structure
The right sales compensation plan can motivate and improve the performance of your sales representative teams. Different plans, however, have their own benefits and drawbacks. Fortunately, you can tailor a plan to meet your company's unique needs and its sales targets by taking these simple steps.
Evaluate your business objectives. Figure out what you need the most, whether it's faster growth, entry into new markets or improving profits.
Look at your company's size. Smaller CPG food and beverage businesses typically benefit from simple, direct compensation models, while larger ones might maximize returns with more complex plans.
Determine sales targets. Do you need more sales volume or bigger profits on sales? Can new lines help you diversify in changing markets? Answers to these questions help you properly focus your efforts.
Consider your sales cycles. Longer sales cycles might require you to pay employees a higher base salary due to extended wait times. On the flip side, a quick turnover in sales cycles makes it easier to pay your sales team on commission.
Innovate when it makes sense. Unique compensation, like bonus pools, may also work in certain instances. Encouraging your team to work together toward a common goal, these sales compensation plans work particularly well when you’re launching new products or opening sales up in new markets.
Implementing and Communicating the Compensation Plan
Once you’ve decided on a sales compensation plan, communicate it clearly to your staff for maximum transparency. Your sales compensation plan should, above all, be simple for your teams to understand so they can easily calculate their earnings upon closing deals.
Most of all, provide support that gives salespeople the tools they need to succeed, including training and resources they can refer to with questions about your products. Designing your sales compensation like this helps you craft a powerful plan that simultaneously improves profits and keeps everyone motivated — all without the need to cap potential earnings.
Implementing a compensation plan can be challenging, especially if this is your first time handing sales over to new hires. Partnering with Balanced Business Group for HR services can help you create a data and experience-driven plan.
Monitoring and Adjusting the Plan
Once you put your sales compensation plan into place, monitor its effectiveness to see how it affects your business objectives. Keep in mind that while you must monitor the plan, it benefits everyone if you’re cautious in implementing changes. Stability and trust in the compensation framework helps keep employee morale and loyalty levels high. Consider watching over sales performance metrics and other important KPIs over the course of a year and then adjusting your plan during annual reviews so employees better know what to expect.
Ensuring Long-Term Success With Your Sales Compensation Plan
Preparing and executing a successful sales compensation plan is an ongoing process that drives your business’ growth and maintains the motivation of your sales staff. Tailoring plans to satisfy the needs of your company and its workers supports improved outcomes, as does clearly communicating details so that each individual sales representative understands. Likewise, monitoring effectiveness and adjusting models as necessary strikes a firm balance between profitability and employee satisfaction.
For your compensation plans to truly succeed over time and change without disrupting your business requires frequent analysis and refinement. Though you can track volatile market conditions, you may not be in the right position to handle the changing tides. That’s where consulting with BBG can help — we assist you in creating a custom sales compensation plan that keeps your business running smoothly and your employees working happily. Contact us today to take the first step in optimizing your sales strategies.
