Do customers often fall off your subscription wagon within months? Change your sales compensation plans to see growth and stability.
Churn rates are like weeds: they start off small, grow into a nuisance, become a bigger problem, and then choke your business. As a business owner, you know to keep tabs on churn. But do you know how to fix it? Or where the problem started?
For an answer, you might want to take a look at your sales compensation plans.
Believe it or not, the customer churn issue you’re dealing with may begin and end with your sales program. Even Mark Roberge, the former CRO of Hubspot, agrees. In fact, he wrote an interesting article about how his business nearly fell flat because of high churns rates.
The question: how do you approach re-configuring your sales compensation plans to see reduced churn results? Begin by understanding the relationship.
Understanding how your sales compensation plan affects your churn rate
If your business relies heavily on subscription services or products, then it’s easy to assume that customer lifetime value is essential to success. Front-end revenue is important, but long-term is where you make the real money.
Question: do you compensate your sales teams within these business frames? Do salespeople care what happens to a customer six months after the sale?
If not, there’s a problem. Your sales force is short-sighted while your business plan is far-sighted. So, what does that mean?
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Your salespeople are seeking out lead opportunities that don’t fit the mold of your business. They have no incentive to sign customers who value a long-term relationship with your company. Salespeople are concerned with that initial sale, and then they move on.
Plus, who knows what type of expectations your salesperson sets for the customer during the onboarding process? This leads to dissatisfaction after only a few months, and then more churn.
3 Steps to align your sales compensation plan with your business goals
1. Create a sales compensation plan that’s unique to your business plan
The key is fusing your sales incentives to your customer value goals. Using a generic, revenue-driven compensation plan doesn’t work for every business. Plus, it will produce irregular, erratic, and possibly harmful results.
Instead, customize your plan. Sit down with your executive team and ask, “How can we reward our sales team for acquiring ideal customers who stay with us?”
Shift the focus from short-term to long-term results. Once you put a premium on scaling sales performance by lifetime value, suddenly your salespeople will WANT to find the right clients who pay off for them down the line.
2. Focus on what the salesperson can control and reward their performance rates
You want to create an incentive for increasing the lifetime value of each sale. That’s the golden ticket. Sales compensation plans, in these contexts, reward people over time with compound commissions.
Here are a few solid points to include:
- Giving a percentage of the initial sale price every month that customer continues their subscription ( or a bi-annual basis)
- Increased commissions based on the overall lifetime performance of a salesperson’s customers (the more you bring, and the longer they stay, the more you’ll receive in commission)
- Creating unique commission plans within “performance tiers”
3. Change your compensation plans over time to re-align with business goals
Look at the company’s growth standpoint each year and re-evaluate your plans.
It’s possible that one year from now you might release a new product or service that needs upfront attention. Maybe your churn rate has leveled out, and it doesn’t make sense for salespeople to receive commissions based on those guidelines anymore.
The point is to keep returning to your sales compensation plans – especially if your customer churn rate is out of control.
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