David Cichelli Blog

Sales Compensation Redefined — Rewarding Customer Outcomes

Posted on May 23, 2013 under Blog

Traditional sales compensation plans are clearly one-sided. Simply put: Pay plans reward sales personnel for increasing the selling company’s sales results, not for meeting the customers’ needs. Further, more elaborate pay programs reward refined measures such as product mix, profit/price attainment or purchasing continuity while all serving the same master—the selling company. As such, these are one-sided reward systems; they serve the selling company, but not the customer.

But what about the value delivered to customers? Should sales personnel be rewarded for customer outcomes? Few, if any, pay programs reward for customer success. Why not? Is it possible? Should it be considered?

The Holy Grail of Customer Success

The dividing line between corporate rhetoric and actual practice begins with the phrase “we are here to serve our customers” and ends with a pay program that rewards for improving company sales results. No gulf is wider than the distance between this “customer do-good” rhetoric and the actual pay program practice. Admittedly, aligning a company’s objectives and its customers’ success is an elusive goal. Regardless, the reward system—sell more—speaks more loudly than any “customer-first” philosophy of meeting and exceeding customer needs.

An illustration from the fitness center industry provides a stark example of this paradox. A national fitness center company pays its sales personnel to sign up new customers in long-term contracts with automatic monthly payments. In fact, the pricing model significantly discourages one-time upfront payments. Monthly payments have proven more “sticky” than one-time payments. Many people simply continue to have their bank account debited without realizing the cumulative impact of these monthly payments. Re-signing a customer to a long-term contract with another upfront payment has proven much more difficult than the relentless (seemingly insignificant) automatic monthly payments. The customer is paying and paying. Not a bad outcome if the customer is using the fitness center. And, that’s a big “if.” It’s well known in the fitness business that few customers continue to use the fitness center after the initial sign-up period. Many terminate their contracts, or worse, let the automatic payments continue without using the fitness center. As expected, the arrival of each new year sees the greatest gain in membership from the “I’ve-got-to-get-in-shape-tribe.” Sadly, they quickly give up and stop going to the gym. This revolving-door model eventually burns through the available local customer base.

Consider this: What if the reward system was tied to fitness center usage, not continuing payments only? It would significantly change the complexion of the fitness industry with greater emphasis on member indoctrination, affiliation, tracking and program support. And, what if, customer goal outcomes (weight loss, strength, endurance and health gains) were part of this reward system? Needless to say, the fitness business would be something more than discouraged newbies passing through the home of a few hardcore fitness addicts.

An additional example can be seen in the airline industry: Airlines are fastidious about measuring airplane on-time performance. They use classic business process optimization methods to improve on-time performance of airplanes. Although airplanes have a schedule to meet, they are not paying for the service—passengers are. Consider this: What if the airlines measured the extent of delay for passengers on a weighted usage basis? In other words, all flyers will have a cumulative annual total of minutes delayed, but a frequent flyer will have a higher weighted delay index. In other words, planes have no clocks; passengers do. Reducing cumulative passenger delay for the most frequent high-revenue producing flyers might change the investments regarding on-time performance. Heavy business routes would get the needed attention for on-time performance before leisure travel routing.

The False Promise of Customer Service Measures

Many companies have sought to measure customer satisfaction, retention or promotion with customer feedback surveys. Unfortunately, most surveys ask the wrong question: “How are we doing?” Not “how are you (the customer) doing?” Nothing illustrates this better than the annoying practice of auto dealer service managers begging customers not to rate them anything less than 10 on a 1 to 10 scale of satisfaction. Shameful. Customer satisfaction surveys, mystery shopper results and net promoter scores all suffer from the same myopic focus on the selling company’s performance and not on the customers’ outcomes.

Rewarding Customer Outcomes

As radical as it might sound, let’s consider the following customer outcomes as potential reward measures for sellers:

  • Return on Investment (ROI). What was the ROI of the customer’s purchase of the company’s product? What benefit did it get?
  • Sales Growth. Did the customer’s sales growth improve as a result of purchasing the product?
  • Productivity Improvement. Did the customers’ productivity improve? Did production costs go down?
  • Customer Defined Success Measures. Does the pay program reward customer defined measures? Has the seller, the company, asked the customers what they define as success?

Expected retorts of measuring customer success might include: too costly, too unreasonable and too inexact. However, as a hypothesis, relentless digging into customer outcomes will reveal new measures; measures that might augment traditional measures of seller success. A company will surprise and delight its customers if it informs them that seller rewards are tied to their success. A remarkable feat of shrinking the divide between hollow customer-centric rhetoric and seller reward systems will occur. Surely, a prescription for market success!