Account Managers vs. Business Developers: Key comp plan differences

Have you decided it's time to specialize in your sales team? One of the first ways companies do this is by separating the Account Management role from the Business Develoment role. If you're thinking of this approach, and if you have a reasonably short sales cycle so that your business developers close at least several new customers per month on average, these tips are for you.

1. Pay mix and upside: Selling to new clients generally relies more on the initiative, skill and creativity of the sales person than does managing existing clients. Existing clients continue to buy partly because sales people do their jobs well, and also very much because the company has delivered value to them in the past. What this means for comp plan design is that the business developer generally has more at-risk pay as a percent of Target Total Compensation than the account manager. The business developer also generally has more upside (more acceleration above target performance) than the account manager.
   
2. Measures: For account managers, measures typically include both revenue and some measure of account (/territory) profit contribution – maybe gross margin or gross profit. For business developers, it is less common to emphasize a measure of profitability as long as it is within acceptable bounds. The message is that the business developer gets the new customers in, then the account manager works over time to grow the value of the relationship to both your company and the customer.
   
3. Incentive form: Depending on the industry you’re in, the market position of the company, and your compensation philosophy, you may be using a commission type incentive (percent of sales, percent of margin, etc.) or a bonus-type incentive (fixed dollar payout for achieving the assigned goal, less for less, more for more). Bonus type incentives are more common in account management roles, and commission type incentives are more common in business development roles.
   
4. Payout frequency: Because the business developer has less fixed pay and is more personally and immediately accountable for results, they are often paid more frequently than the account manager. The business developer may be paid monthly, for example, while the account manager is paid quarterly.

Appropriate cost of the sales force

Question: Our sales force's compensation is 38% of total company compensation. Is that appropriate?

Answer: There's not really any useful benchmark I know for sales compensation % total compensation. It depends very much on your industry, company stage and basic competitive strategy (technology driven, operations driven, market driven).

The right place to focus is on the value of the sales force and how that relates to the cost. Even if what they are paid is market-competitive, it could be that you don't have a sustainable selling model if the rest of the economics of the company (marginal profitability of the next sale, cost of supporting the sale, overhead structure, other channel costs, etc.) don't align to create value for the owners.

There are useful ratios that hold within industries like total sales compensation should stay below xx% of revenue -- but even these are useful guidelines at best.

One key idea to keep in mind is that, as a company matures, the sales people should continue to earn more money each year. But their productivity should go up even faster than their earnings so that sales compensation as a percent of revenue declines gradually over the very long run. This is because the company is adding to the sales person's ability to be productive every year by building their product line, cost efficiency, market presence, selling tools, etc.

First year comp plan for a new experienced sales person

Question: We need a comp plan for the first year for a new experienced sales person.

Answer: My suggestion is that you first be clear about the long-term nature of the role, the expected level of productivity (e.g., sales/year), and the amount of total compensation you feel would be appropriate for that level of productivity. You can then design the "steady state" comp plan for the longer run.

Once you have designed the long-term comp plan, you will be able to clearly state the base pay amount as the base for that long-term plan. Let's assume it's $60k base with a target total compensation of $100k. Then you would offer a non-recoverable first year draw of $40k with the expectation that the second year, any pay in addition to the base would have to be earned based on the mechanics of the incentive plan.

Where are the sales comp plan templates?

Many people would like to find a book of sales plan templates -- but there's not one I know of. That's probably because it's sort of like asking for someone to provide a copy of their house plans for your consideration. It could be just the thing for you, but more likely isn't. There are so many variables, so many options -- usually many right answers for most situations, but also even more wrong answers.

There are principles, common industry practices, and a long list of common mistakes. And there's what has worked and what hasn't in your company. All these things, along with your current business imperatives and the role of the sales organization in executing them, will guide your plan design.

A couple of good sales comp books

HR/Compensation professionals are often asked to learn about sales comp as part of their job. One good place to start is with a book, and I recommend both "The Sales Compensation Handbook" edited by Stockton Colt and "Compensating New Sales Roles" by Colletti and Fiss. In addition, there is a very helpful course offered by World at Work, "Elements of Sales Compensation."

Sales compensation design is exciting and challenging, but it is high-stakes work. There are terrific ways to really create value for your company, as well as wrong answers that can create a disaster. If your company's challenges are significant, a consultant can help.

Basic principles guide sales comp design

In comp design, the possibilities are endless, but the principles are few:

1. Ensure that the incentive offered is meaningful enough to drive desired results (but no so "meaningful" that problems arise with quality, integrity, etc.).
2. Make the goals/ criteria for earning the incentive clear and explicit -- and achievable. If goals aren't seen as achievable, no one is going to reach for them.
3. Align measures with top priorities for the company -- remember that your incentive plan is a powerful communication medium. If you pay for activities, you will get activities. If you pay for results, you will get results.
4. Document and communicate the plans well. Track and report more frequently than you pay. Publish the reports in an understandable format.
5. Keep it as simple as it can be and still reflect the requirements of the business. In the tradeoff between Simple and Fair (meaning perfect reflection of value created by the employee), err on the side of Simple.
6. Keep your eye on these principles, and consider revising the plan every few years. Your business priorities change, your messages to employees change -- so should your plans.