Global management consulting firm BCG has taken a close look at compensation models and trends for inside sales personnel and concluded it is time for companies to take a fresh look at them too.
Reason: Several factors may be rendering current models antiquated. To assess them, BCG partnered with the American Association of Inside Sales Associates to evaluate compensation, bonuses and incentives.
Sales compensation mostly based on past sales
The assessment immediately identified one questionable practice that likely represents a current deficiency: Companies continue to predominantly use past sales trends and conversion rates as the basis for developing future compensation, bonus and incentive models even though they have at least some insight into how these historical trends are evolving.
How many companies fall into this trap? About 86 percent, BCG found.
Sales compensation mostly based on near-term revenue missing growth, margins and customer success
But that’s only the first possible deficiency. The second finding is that companies largely are looking fairly narrowly at sales, basing compensation primarily on near-term revenue and overlooking growth, profit margins, and longer-term customer success into consideration that also are meaningful to a company’s sales success.
Sales executives have mixed views
Given these possible deficiencies, how do sales executives feel about current models and structures of compensation? Answer: They appear mixed in their views. Sixty five percent feel current structures maximize revenue for the firm while 21 percent are neutral on that question and 15 percent feel the structures run contrary to revenue maximization.
But the biggest deficiency in their perception of the models is on how it encourages upselling and cross-selling models: Only 38 percent feel current models encourage those opportunities while 21 percent are neutral on them and a full 41 percent feel they do not encourage them.
Inside sales compensation gap with external sales is narrowing fast
One final finding from the BCG report: With customer availability still less predictable in-person given the ongoing pandemic and associated restrictive regulations, companies are facing growing pressure to evaluate their inside sales compensation models. A comparison of inside sales compensation against that of external sales teams finds that external sales continues to be more costly to companies.
This fact was largely already known. Less known: As compensation models continue to evolve, a notable 41 percent see the historical and current gaps between the two sales functions beginning to shrink and possibly ultimately even out.