Setting Sales targets and rewards can be both an emotive and challenging process, but it does not have to be. The process is more science than art so its mainly a numbers and motivational exercise. This paper gives some tips as to how to approach the process for both traditional and eBusiness and provides a link to a more detailed paper which goes into the detail.

1. 10 Tips for setting sales targets and 10 tips for commission
This is a summary of a detailed paper which outlines the critical success factors in setting sales
targets and commissions for both traditional and digital selling. The detailed paper can be
downloaded at http://intelligentorg.com/white-papers-pubs/
10 Target setting considerations
1. Before setting Sales persons targets understand the overall business Sales goals (which will
be your Sales function targets) – Sales resource targets must add up to total
2. Be clear what the important Sales target categories are for the target period (Units,
Volume, New Revenues, Current client revenues, Gross Margin, Operating Margin or some
mix) – Sales behaviour and focus will be determined by the category types
3. Understand the flexibility a Sales person has in setting price as this can influence targets –
Have they the skill, structure and controls to still achieve the annual/period targets
4. Understand the cost of sales and how the sales person can impact – Is there self-correction
incentive for the sales person to minimise the cost of sale.
5. Document the starting point , the pipeline for the person (backlog, closing, named qualified,
named unqualified, un-named) – Sales targets need to be based on capacity for new
closures, not stuff already in the bag
6. The individual’s capability, the context has to be considered, past performance, relative
performance, scope of target market. – Though sales standards are important, one size fits
all may be inappropriate.
7. Stakeholder belief, all stakeholders must believe the targets are ambitious, achievable and
appropriate – Secure commitment to the target
8. Involvement, in the process ensures, ownership, accountability, and commitment – Sales
person motivations and success potential is radically enhanced by being part of the process
9. Expectation Management, The target setting process is a negotiation to align the company’s
needs with the individuals, managing expectations in an open, transparent manner
supported by facts – Closing the gap between sales persons target and business needs early
in the cycle.
10. It’s a scientific numbers game, document the basis for setting targets, marketing creates
leads, sales also create leads through activity, sales activity converts leads to prospects, to
proposals to contracts – Sales people must understand it’s more a science than an art.
10 Commission planning considerations
1. Variable Pay (Commission) influences behaviours, you want to encourage the right
behaviours, sales actions and activities – Prevent Sales people doing bad business by having
the correct commission plan
2. Sales Motivations are important, good sales people are motivated by different things ,
though earnings needs to be central, do not forget other motivators such as recognition,
career etc. – One size may not fit all
3. Fixed versus variable pay, commission could be up to 60% of on target earnings (OTE),
however it must consider the nature of the business and sales process. – Low volume, High
Value and/or complex team sale, and/or low sales automation, and or long sales cycles
usually attract higher commission rates, the inverse is also true (See white paper graph)
©Declan Kavanagh Setting Sales Targets & Commissions

2. 4. Commission & the business model, at a sales unit and business unit level commission must
be considered to ensure overall gross margins are achieved – Plan and accrue commission at
rates that ensure after commission GM targets are achieved.
5. What should you commission? Volume where it’s a tactic to clear stock or kick start a new
product, or where unit price and GM are tightly controlled. Revenue where Sales person
influences price but not cost, GM where there is flexibility for sales. Combinations can be
used to control and incentivise. Thresholds should be set to earn and sliding scales can be
used – What you commission is what influences the sales person, link it to business model
goals
6. When do I pay commission? The usual target and commission cycle is annual, but payments
can be as frequently as weekly depending on the sales cycle, payment cycle, nature of sale
and ability to measure. Its normal only to pay when cash is collected or guaranteed,
reconciliation at the end of the primary period is required (e.g. annually) – Pay commission
as frequently as possible once criteria are met and with reference to nature of sales role.
7. Who calculates commission? The finance function bridges sales, delivery, HR and
accounting, they are independent and also have the regulatory and accounting processes to
ensure there is control and fairness in the process – The CFO-Finance dept. are best
positioned to provide accurate and relevant commission information.
8. How long do I pay commission? This can be tricky as some sales people will sell multiyear
revenues, add the complexity of New Sales handing over to account management, and/or
changes to Sales structure during a period. There are a range of solutions depending on the
context, however the sales person that assures the sale or component of revenue and cash
receipt should have an incentive – Those who contribute to assuring cash receipt need to
have some reward, often declining commission rates over a period to a stop point are
necessary.
9. Commission adjustments and addendums, Accelerators, Bonuses & Caps. Accelerators are
useful motivators where stretch targets are exceeded, increasing the commission rate for
incremental sales, so long as the incremental value to the organisation exists. Bonuses
competitive or to encourage a specific behaviour such as new customer acquisition can be
used to motivate. Caps are emotive and there are arguments for and against, my preference
is to have caps but make them attractive – Use all the tools in the tool kit to maximise
performance underpinned by ensuring there is a financial business case.
10. The process is not an annual event but a continuous performance management process.
The variable pay process needs to be aligned with the grade, comp and benefits process and
the non-financial incentivised performance standards. The process needs to be documented,
communicated and understood. – The annual target and commission plan between the
company and the individual must be documented and signed by both parties.
eBusiness & on-line Sales
 The level of automation and control determines the nature of the KPI’s and commissions.
 It’s all about how the human interventions attract visitors to the site and convert to sales
 The level and type of human interventions such as live chat, contact centre influence
structure.
 The end goal and targets are financial revenues and margins so it’s not too different.
©Declan Kavanagh Setting Sales Targets & Commissions