
Striking the Right Balance Between Compensation Spend and Sales Effectiveness
20 min read
Introduction
In the current economic climate, post-pandemic, the war in Ukraine, the cost of living crisis, inflation, and increasing interest rates, organisations are facing unprecedented cost pressures. These pressures are leading businesses across all industries to tighten their budgets and strive for maximum return on investment. As evidenced by the recent increase in job cuts in the Tech sector, organisations are seeking to manage their costs more efficiently than ever before.
“Sales force costs represent the largest marketing expenditure for many firms, accounting for an average of 10% of sales revenues and up to 40% in certain B2B industries.”
The annual spending on sales force management in the US alone exceeds $800 billion, with $200 billion devoted solely to compensation. This is comparable to the estimated spending on media and digital advertising, highlighting the importance of effective management of sales force costs.
Recent studies have found that up to 10% of compensation spending is ineffective, representing as much as 4% of annual revenue in certain B2B industries – that’s an enormous and unnecessary cost for any business.

Common trends & challenges
In today’s market, customer retention is even more crucial than ever, and for good reason. Acquiring a new customer costs about 5 times more than retaining one. Naturally, organisations are focusing on strategies to retain their customers and keep them satisfied.
As a result of growth, many businesses turned to mergers and acquisitions, as well as investing in product innovation. These businesses are now focusing on selling their newly developed products and services to customers. The ability to cross-sell has become a critical element of their strategy to boost the average order value and maximise every transaction.
Following organisational restructuring, businesses are looking for ways to create efficiencies by breaking down silos and aligning teams with common objectives. The question of whether SDRs should be credited at the point of a meeting booked, held, opportunity creation, or order placed remains hotly debated in (virtual) meeting rooms worldwide. This debate reflects the challenges that organisations face when trying to balance their priorities and optimise sales effectiveness.
Acquiring a new customer costs about 5x more than retaining one

As businesses strive to balance their sales effectiveness with compensation expenditure, they are taking a closer look at their compensation plans. This scrutiny is driven by the need to optimise customer retention, cross-selling, and new business development while keeping costs under control. To achieve these objectives, leaders are grappling with a number of questions:

As you know, creating an effective sales compensation plan is easier said than done. The challenge is a complex one, as these plans must reflect the specific industry sector and product offerings, while also taking into account the unique circumstances of the company. Furthermore, the plan must be effective for a wide range of performance levels, support effective onboarding, and be flexible enough to handle special or temporary assignments.
Sales compensation plans must also be aligned with functions beyond sales, such as pre-sales and tele-marketing. To ensure maximum effectiveness, these plans should be designed to promote collaboration between teams and avoid silos that can impede sales performance.
The good news is, despite the complexity, there are certain principles that have stood the test of time when it comes to sales compensation plan design. Let’s take a closer look at some of these principles with a particular focus on the questions asked above.
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