Optimizing Compensation Plans: How to Use QuotaPath for Cost Predictability

The lifeblood of any sales organization is a motivated and well-compensated team. But crafting a sales compensation plan that incentivizes top performance and checks commission costs can seem impossible.

Here’s the dilemma: offer transparent and attractive commissions to drive sales, but risk excessive payouts eroding your profits. 

Ever heard of a bluebird deal in sales? 

These whale-sized deals often break compensation plans, leading to excessive payouts. While we think the organization should pay the rep under the compensation plan terms (and structure next year’s plans to mitigate these), some will try to cap payouts to avoid huge commission effective rates. 

Conversely, a stingy compensation plan might demotivate your team, leading to stagnant sales growth and increased employee churn.

Compounding this challenge is the issue of data visibility.  

Many companies rely on clunky commission spreadsheets and manual calculations, creating a blind spot for commission cost forecasting and identifying areas for optimization.

In this blog. we’ll unveil the secrets to taming the sales commission cost monster with the help of QuotaPath’s sales compensation management software. 

We’ll explore strategies to balance transparency and cost efficiency while diving into the importance of data-driven insights for informed decision-making.  We’ll equip you with the knowledge and tools to design and predict the performance and cost of a robust compensation plan. 

The Importance of Cost Predictability in Sales Compensation

First, let’s talk about the importance of cost predictability in sales comp. 

Imagine navigating your business with a blindfold regarding sales commission costs, which usually account for 50% of a company’s customer acquisition cost (CAC). 

Unpredictable payouts, such as an 8-figure bluebird deal that leads to a mid 5 to 6-figure commission check, can wreak havoc on your financial well-being, leading to a cascade of challenges such as: 

• Cash Flow Issues: Unexpected spikes in commission payouts can disrupt your cash flow, making it difficult to manage daily operations and meet short-term financial obligations. This is especially painful at early-stage companies that often lack cash flow predictability. 
• Budgeting Challenges: Without a clear understanding of future commission costs, it’s nearly impossible to create accurate budgets. This can lead to overspending or under-allocation of resources in other areas.
• Difficulty Forecasting Profitability: Accurately forecasting your company’s profitability becomes a guessing game when commission costs are unpredictable.

Fortunately, there’s a path to financial clarity.  

By achieving cost predictability in your sales compensation plan, you unlock benefits like improved financial planning, better resource allocation, and an ability to scale effectively. 

How QuotaPath Helps You Achieve Cost Predictability

Now, let’s examine how QuotaPath is crucial in helping your revenue time predict total compensation costs.

At the start of 2024, our team released a series of tools that enable leaders to scenario plan and model compensation costs within the app, including sales compensation reporting.

So, in place of creating a series of compensation Excel sheets that report according to manual inputs of deal earnings and attainment data, leaders can test and predict plan performance in QuotaPath. 

This unlocks the ability to compare performance between your most senior and junior reps to determine whether the former’s higher on-target earnings packages are worth the cost.

When it comes to attainment, leaders can visualize deal distribution by rep and period to determine seasonal changes that may impact future compensation strategies. For instance, if a RevOps director notices a slump in sales during Q2, this might indicate the need for lowered quotas or extra incentives to drive deals. 

Then, when it comes to adjusting compensation plans or rolling out one for a new team, product, or territory, QuotaPath’s modeling tab powers leaders to estimate how much the comp plan would cost the business according to various attainment scenarios. 

This means you could do so if you wanted to see how much your company would pay on a specific plan if your team hit 80% attainment. What about 150%? Same thing. 

Using Draft Plans, you could also build a plan proposal and test it against last year’s sales numbers to see how much you would’ve paid out, making it easier to identify and predict the costs of outlier deals.

Optimizing Your Sales Compensation Plans for Cost Efficiency

In addition to using QuotaPath to model and test for compensation plan cost efficiencies, you can leverage QuotaPath to identify areas for optimization or hidden costs in your existing plan.

For example, you can use QuotaPath to analyze your existing commission structures, quotas, and payout triggers in granular detail. This helps pinpoint areas where your current plan might be bleeding money unintentionally.

You can also use QuotaPath to answer:

• Are overly generous commission rates for lower-value deals impacting your margins?
• Are quotas set too low, leading to payouts without significant revenue generation? 

QuotaPath empowers you to identify these inefficiencies and pave the way for cost optimization.

But aside from the help of Quotapath, remember to follow these five best practices to optimize sales compensation plans for cost efficiency:

1. Align Compensation with Business Goals: Don’t just reward reps for closing deals, ensure they’re closing the right deals.  Structure your plan to incentivize behaviors that drive high-value sales, customer retention, or other strategic objectives aligned with your overall business goals. This helps ensure you’re not paying commissions for activities that don’t contribute significantly to your bottom line.
   
2. Implement Tiered Commission Structures:  A one-size-fits-all commission rate can be costly. Tiered structures reward high performers progressively as they exceed targets. This motivates top performers and keeps costs in check for lower sales volume. You could also consider cliffs or commission floors to guarantee a percentage of performance before rewarding total base commission rates. 

Read: Should I have a commission floor in my sales compensation plan? (Blog)

3. Set SMART Quotas:  Specific, Measurable, Achievable, Relevant, and Time-bound quotas are crucial.  Ambitious yet attainable quotas encourage reps to strive for higher sales without incurring excessive commission payouts for quotas that are too easy to achieve.
   
4. Utilize Data-Driven Insights: Don’t rely on gut feeling. Analyze historical sales data and compensation trends to identify areas for cost optimization. Tools like QuotaPath can help you pinpoint inefficiencies and make data-driven decisions about your plan.
   
5. Leverage Strategic Incentives: Bonuses and accelerators can be powerful motivators. Use them strategically to incentivize specific behaviors, like closing larger deals or acquiring new customer segments. This allows you to focus your incentive spending on activities that contribute the most value to your business.

Ready To Use Quotapath To Optimize Your Compensation Strategy? 

Above, we’ve reviewed the challenges of managing sales compensation costs and how QuotaPath empowers you to achieve cost predictability. 

By providing data-driven insights and powerful optimization tools, QuotaPath helps you design a compensation plan that incentivizes top performance without breaking the bank. But the benefits extend beyond cost control.

 QuotaPath can also help you:

• Create transparent and aligned compensation plans that fuel sales motivation and drive peak performance.
• Streamline administration by automating commission tracking and calculation, scheduling payouts, and surfacing administrative tasks necessary to run payouts seamlessly.

Learn how QuotaPath can help you achieve cost predictability, boost team motivation, and streamline sales operations. Schedule your tailored demo with our team today.