Service Leadership Blog: Creating Lasting Behavior Change [Part 2]

posted by Paul Dippell on Monday, September 19, 2016 in Unified Communications and IT Blog

You are continually changing your offerings – adding new things for the team to sell and deliver. For you to be able to afford these, you must attain a high degree of likelihood that you can continually bring new offers to the table – and get 100% of them sold to 100% of customers. This is critical to replacing sunsetting technology in your stack, differentiating, meeting changing customer needs, maximizing revenue per customer and account control, and so on.

None of these can be left to chance, or to the whims and self-perceived capabilities of your people. For you to own the strategy for your success, you must have an incentive plan which formalizes and enables your need to change.

In our first blog “Creating Lasting Change,” we saw that high-performing Solution Providers, regardless of their Predominant Business Model©, focus on going from success being mostly situational and effort-related, to increasingly intentional and strategy-related.

In doing this, they find increasing value in having an incentive compensation structure which:

  • Creates lasting behavior change, and
  • Allows them to change behavior many times in the future without changing the incentive plan itself.

The Best-in-Class Incentive Model for Creating Lasting Change

It takes effort to learn to do new things. As a result, if only a positive incentive is placed on doing something new, most often the desired behavior change doesn’t materialize. Because of this, high OML incentive plans have both positive (“up-side”) and negative (“down-side”) incentives. Meaning:

  • If I fail to adopt the new thing, I can’t make what I used to make simply by ignoring it and doing even more of the old thing.

In our (sold-out!) August 31 webcast with GreatAmerica, “Creating Lasting Change: How to Make Your Business Model Changes Stick,” we used the example of Hardware-as-a-Rental (HaaR) as a Best-in-Class offering to increase the speed with which you can close new MRR deals, onboard them to start billing, speed their adoption of your technology standards, and optimally balance your product-and-projects practice with your MRR practice.

As a reminder, or in case you missed that webcast (!), here is the slide which discusses the Best-in-Class “upside-and-downside” incentive plan for salespeople, which incorporates lasting change:

By reducing the Sales reps’ commissions on “the old stuff” and not restoring it until they also sell “the new stuff” (in this case adding HaaR to most of their sales) they have sufficient incentive to learn and adopt selling the new stuff, the example being HaaR. (Results show that “upside-only” incentive plans fail to create sufficient behavior change, and the new offerings fail, again and again.)

Having given this example, we then said, here’s how you apply this to adding the next offer, and then the next offer…hosted VoIP and MDM were the examples:

This illustrates the incentive structure that the Top (Best-in-Class) Solution Providers use to incorporate ever-changing but lasting change into their business models. This is how they take back control of their strategy from the whims and self-perceived limitations of their people – their salespeople in this case.

The Service Leadership Incentive Model Spreadsheet and How You Get It

In the August 31 webcast with GreatAmerica, we showed you a snapshot of a new Service Leadership tool – a spreadsheet which enables you to model out exactly how you should structure your “upside-and-downside” sales incentive plan, to create lasting change.

In our next webcast, September 28th at Noon CDT, we’ll demonstrate this spreadsheet, but here is a preview of it. At the end of this article, we’ll also tell you how you can get it, at no cost, in appreciation from GreatAmerica.

The Importance of Attainment-Based Incentive Plans

The “upside-and-downside” Sales incentive plan spreadsheet enables you to model three different, attainment-based incentive plans.

By “attainment-based” we mean:

  • It pays incentives based on the degree to which the employee attains certain pre-determined performance goals.

Note that this is critically different from “do more, get more” incentive plans.

The problem with “do more, get more” is that, once the employee makes what they want to earn, they tend to stop doing more, regardless of whether they have hit the performance level your profit model requires. This means that the employee makes what they want, but you don’t. They win, you don’t.

Attainment-based incentive plans, on the other hand, pay more to the degree that the employee performs closer and closer to the goal set by your profit model. These plans pay 100% of what you told the employee they could earn when they entered the position, when their performance hits 100% of what your profit model indicates you need. They win, you win.

This is a key way the Best-in-Class companies help ensure they hit their profit goals – by making sure the employees get full pay only when the company hits its own “full pay” (i.e. profit goals).

The “upside-and-downside” sales incentive plan spreadsheet allows you to model this out for three different, attainment-based Sales incentive plans. The third one is the Best-in-Class while the first and second ones are the “good” and “better” versions. They’re simpler, but fall short of providing you with the highest likelihood of attaining lasting change.

All three plans share these features:

  • They are sales plans for a rep with a Targeted Annual Earnings (TAE) of $200,000 (for those of you who are SMB MSPs, you can easily change this to $100,000);
  • 40% of the TAE is base pay and 60% is incentive pay;
  • The plans protect the company when the person’s performance is low; they put the employee ahead of the company when attainment approaches 100% of plan; and they allow top performers (i.e. those attaining more than 100% of goal) to earn incentives at an accelerated rate.

Thus, a balanced, win/win approach which even puts the employee a bit ahead of the company when their performance is within 80% of goal.

The model also shows you – for each of the three plans and at any level of attainment – the degree to which the employee’s actual pay meets (or exceeds) the amount needed for you to attain your profit model:

  • If you are a Product-Centric company (less than 40% of your total revenue comes from Service you deliver), the Sales rep’s total pay should be no more than 20% of the Gross Margin dollars they generate.
  • If you are a service-centric company, such as an MSP, the Sales rep’s total pay should be no more than 12.5% of the Gross Margin dollars they generate. This is because Service revenue can (and should) have higher Gross Margin % than product revenue, and because Service revenue requires more of a team-selling approach and greater investment by the company to deliver, than product revenue.

The model enables you to see just what percent of Gross Margin dollars you are paying the Sales rep, at any level of attainment. Here is just one of several outputs of the spreadsheet model, in this example showing how the employee and the company are kept in financial alignment as the employee’s performance nears, attains and exceeds 100% of goal:

The Three Attainment-Based Plans You Can Model in the Spreadsheet

The spreadsheet enables you to model three different attainment-based incentive plans. As noted above, they’re “good”, “better” and “Best-in-Class”:

Plan

Tab Title

What It Does

Pros

Cons

“Good”

Multiple Offers, No Cross-Sell

Simply sets Sales goals for each of four offers, and pays each out in proportion to the degree to which each is attained.

Simplest to design and implement.

Least effective at delivering on your strategy. There’s no additional downside (or upside) if the Sales rep decides to avoid selling one or more offers. They can make up to their full pay – and beyond – by simply outselling one thing, and ignoring one or more of the others.

 

Doesn’t formalize a culture of ongoing adoption of change.

“Better”

Hold Back for New Offering

Holds back some incentive pay on old offers, unless and until a threshold is attained in selling a new offer.

This is the basic form of the “upside-and-downside” approach discussed in the first blog and webcast.

Better chance that the new offer will be adopted sufficiently for you to earn back your investment and hit your profit goals on it.

Once in place, formalizes the ability to incorporate a sequence of new offers without changing the incentive structure itself.

Extent of downside and upside is such that Sales rep can still attain their compensation goals without properly delivering the performance balanced across all your offers needed to make them all successful for you.

“Best-in-Class”

Cross-Sell and New Offer

Holds back some incentive pay on old and new offers, unless and until all thresholds are attained for all offers, new and existing.

This is the most effective form of the “upside-and-downside” approach discussed in the first blog and webcast.

 

Greatest chance that your offerings strategy will be sold through 100% to 100% of customers, and therefore that your risk mitigation and value creation strategies will be achieved.

Once in place, formalizes the ability to incorporate a sequence of new offers without changing the incentive structure itself.

Most complex to design and implement.

 

As you can see:

  • It is possible to craft incentive plans which create win/win outcomes for the company and the employee.
  • Even more, it’s possible to create them so that they encourage lasting adoption of new offers.
  • Most importantly, it’s possible to create them in such a way that additional new offers can be continually added, without having to change the incentive structure.

This is why the Top (Best-in-Class) Solution Providers use the “Cross-Sell and New Offer” incentive plan structure – it delivers on these three key goals.

It may be the most complex to implement, but it’s the most powerful. And, by formalizing the way new offers are incorporated, it is simplest in the long run because it requires no modification of the incentive structure when you bring out each new offer. It establishes a culture of adopting and delivering on continuing and lasting change.

How You Get This Spreadsheet

Ok, so this was a blatant teaser! Find out how you can get this spreadsheet at no cost, in appreciation from GreatAmerica, by watching the webcast below!

 

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About The Author

Paul Dippell is founder and Chief Executive Officer of Service Leadership, Inc. a leading Solution Provider consultancy firm, and publisher of the Service Leadership Index® of Solution Provider performance, the industry's broadest and deepest operational and financial diagnostic service. Additionally, Service leadership advises leading global IT manufacturers on channel management and strategies, and SMB and mid-market customer product and services strategies.

  1. best practice
  2. compensation
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