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Price Skimming vs. Penetration Pricing: Choosing the Right Sales Approach

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he Point: Pricing strategies are pivotal in the success of products and services within today’s fiercely competitive business landscape. Two popular approaches that businesses often consider are price skimming and penetration pricing. Both strategies aim to maximize profits, but they differ in their implementation and intended outcomes. In this article, we will delve into the nuances of price skimming and penetration pricing, exploring their advantages, drawbacks, and when it is appropriate to employ each strategy…Enjoy!

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Price Skimming vs. Penetration Pricing

Before delving into the design process, it is important to understand the purpose of sales compensation. At its core, sales compensation aims to incentivize salespeople to achieve specific goals and objectives. By linking financial rewards to performance, organizations can motivate their sales teams to meet and exceed targets, driving revenue and growth. A well-designed compensation structure should not only attract and retain talented sales professionals but also reinforce a sales culture focused on results and continuous improvement.

Price Skimming

Price skimming is a pricing strategy commonly used by businesses when introducing new, innovative, or high-end products to the market. The approach involves initially setting a high price for the product, targeting early adopters and price-insensitive customers who are willing to pay a premium. Over time, as the product gains wider acceptance, the price is gradually reduced to attract more price-sensitive customers.

Advantages of Price Skimming

One significant advantage of price skimming is the ability to capture maximum value from customers who are eager to be the first to own a novel product. By setting a high initial price, businesses can extract profits from early adopters who value exclusivity and are willing to pay a premium. This approach also helps to recoup research and development costs, which are often high for cutting-edge products.

Furthermore, price skimming can create a perception of high quality and prestige for the product. When customers see a premium price, they may associate the product with superior features, craftsmanship, or performance. This perception can contribute to building a strong brand image and attracting customers who value status and luxury.

Drawbacks of Price Skimming

While price skimming offers several advantages, it is not without its drawbacks. One of the main challenges with this strategy is the risk of alienating price-sensitive customers, who may be deterred by the high initial price. These customers might delay their purchase or turn to competitors offering lower-priced alternatives, potentially hampering the product’s market penetration.

Additionally, as the price is gradually reduced over time, customers who initially purchased the product at a higher price may feel resentment or regret. Negative word-of-mouth from dissatisfied customers can undermine the brand’s reputation and hinder long-term success.

Penetration Pricing

Penetration pricing, on the other hand, is a strategy where businesses initially set a low price for a product to quickly gain market share. The objective is to attract a large customer base by offering a competitive price that entices both price-sensitive and early adopter customers. Once a significant market share is achieved, the price can be gradually increased to improve profitability.

Advantages of Penetration Pricing

One of the primary advantages of penetration pricing is its ability to rapidly gain market share. By offering a lower price than competitors, businesses can attract price-sensitive customers who are looking for value for their money. This strategy can help establish a foothold in the market, generate buzz, and create momentum for the product.

Penetration pricing can also lead to higher customer loyalty and repeat purchases. When customers initially experience the value offered by a low-priced product, they may develop trust in the brand and become more likely to make future purchases or upgrades at higher price points.

Drawbacks of Penetration Pricing

While penetration pricing can be effective in capturing market share, it can pose challenges in terms of profitability. Setting a low initial price may result in lower profit margins, which can make it difficult to recover costs and achieve profitability in the short term. Additionally, once the price is increased, customers who were initially attracted by the low price may be reluctant to pay the higher amount, leading to potential customer churn.

Choosing the Right Sales Approach

Choosing between price skimming and penetration pricing requires careful consideration of various factors, including market dynamics, product characteristics, and business objectives. Here are some key factors to consider when deciding which sales approach to adopt:

  1. Market Conditions: Assess the competitive landscape and market demand. If there are few competitors and strong demand for innovative or unique products, price skimming may be a viable option. Conversely, in highly competitive markets where price sensitivity is prevalent, penetration pricing can help gain a competitive edge.
  2. Product Differentiation: Consider the extent to which your product stands out from competitors. If your product offers distinct features, superior quality, or addresses a specific customer need, price skimming can help capitalize on its uniqueness. On the other hand, if the product is relatively similar to existing offerings, penetration pricing can help differentiate through a lower price.
  3. Target Customers: Understand the buying behavior and price sensitivity of your target customers. Price skimming is effective when there is a segment of customers willing to pay a premium for exclusivity and early adoption. Penetration pricing, however, appeals to price-conscious customers who prioritize affordability and value.
  4. Profitability and Cash Flow: Consider the financial implications of each strategy. Price skimming can generate higher initial profits, but it may take longer to achieve volume sales and market penetration. Penetration pricing, although initially sacrificing profitability, can drive faster revenue growth and market share.
  5. Long-Term Strategy: Align your pricing approach with your long-term business objectives. Price skimming is more suitable for products with limited life cycles or when short-term profits are crucial. Conversely, penetration pricing can be a foundation for building customer loyalty, market share, and long-term profitability.

SUMMARY

Price skimming and penetration pricing are two distinct sales approaches with their advantages and drawbacks. Price skimming enables capturing maximum value, establishing a premium brand image, and recovering R&D costs. Penetration pricing, on the other hand, focuses on gaining market share, attracting price-sensitive customers, and fostering customer loyalty. Selecting the optimal pricing approach requires a comprehensive understanding of your product, target market, and competitive landscape. Regular evaluation and adaptation of your pricing strategy will ensure that you remain responsive to market dynamics and achieve sustainable growth in the ever-evolving business landscape. Remember, the pricing strategy you choose can significantly impact your product’s success, so make a well-informed decision based on careful analysis and an understanding of your customers’ needs and preferences.

Sam Palazzolo, Managing Director

Sales Prospecting Strategy Guide: 5 Steps to Identify and Win More Prospects!

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The Point: At our sales consulting firm, Zeroing Agency, we understand the importance of sales prospecting. Sales prospecting is the process of identifying potential customers for a product or service. It’s an essential aspect of any business that wants to grow its customer base and increase revenue. However, finding new prospects can be a challenging and time-consuming task. In this post, we’ll outline a five-step strategy to help you identify more prospects and win for your sales pipeline… Enjoy!

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The 5 Step Sales Prospecting Strategy Guide

When we think of sales prospecting, we think of a sales process. Nothing spells process like a strategy guide, so what follows is our “5 Step Sales Prospecting Strategy Guide” to assist you in not only identifying prospects, but winning their business.

Step 1: Define Your Ideal Customer Profile

The first step in any effective sales prospecting strategy is to define your ideal customer profile. This is the type of customer who is most likely to benefit from your product or service and who is also most likely to buy from you. Your ideal customer profile should include characteristics such as industry, company size, location, job title, and pain points. Once you’ve defined your ideal customer profile, you can use it as a blueprint to guide your prospecting efforts.

Step 2: Identify Your Target Accounts

The next step is to identify your target accounts. These are the companies that fit your ideal customer profile and are most likely to buy from you. Start by researching companies in your target industry and use tools like LinkedIn, Crunchbase, and industry associations to identify potential targets. Once you have a list of target accounts, you can start researching specific contacts within those companies who might be interested in your product or service.

Step 3: Leverage Multiple Channels

Effective sales prospecting requires a multi-channel approach. Use a combination of channels like email, social media, phone, and direct mail to reach out to your target accounts. Personalize your outreach for each channel and be sure to highlight the value of your product or service to the recipient. Use tools like HubSpot, SalesLoft, and Outreach to streamline your outreach and track your results.

Step 4: Engage and Nurture Your Prospects

Once you’ve identified your target accounts and reached out to them, it’s important to engage and nurture your prospects. This means providing them with valuable content, answering their questions, and building a relationship with them over time. Use tools like content marketing, webinars, and social media to provide value to your prospects and move them closer to a buying decision.

Step 5: Measure and Optimize Your Strategy

The final step in any effective sales prospecting strategy is to measure and optimize your results. Use tools like Google Analytics, HubSpot, and Salesforce to track your prospecting efforts and analyze your results. Look for patterns in your outreach and engagement and use this information to refine your approach over time. Make data-driven decisions and continually test and optimize your strategy to improve your results.

SUMMARY

Sales prospecting is an essential aspect of any business that wants to grow its customer base and increase revenue. To find more prospects and grow your sales pipeline, follow this five-step strategy: define your ideal customer profile, identify your target accounts, leverage multiple channels, engage and nurture your prospects, and measure and optimize your results. With these steps, you’ll be able to find more prospects and build a successful sales pipeline that drives growth for your business.

At Zeroing Agency, we specialize in sales consulting and can help you create a more effective and motivating compensation system for your sales team. Contact us today to learn more and take the first step towards maximizing your sales team’s potential.

Sam Palazzolo, Managing Director

Sales Strategy Consulting for Startups – 5 Tips!

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The Point: Starting a new business can be an exciting and rewarding experience, but it’s also a challenging one. At our sales consulting firm, The Zeroing Agency, we know that one of the biggest challenges that many startups face is developing a successful sales strategy. Without a well-defined sales strategy, it can be difficult to generate the revenue necessary to sustain and grow a business. This is where sales strategy consulting for startups can make a huge difference. By working with a team of experts, startups can develop and implement a sales strategy that will help them achieve their business goals. In this blog, we’ll explore what sales strategy consulting for startups is and how it can help your business…Enjoy!

Transform Your Business.

Download your free 37 page | 128 question Business Transformation Self-Assessment.

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Sales Strategy Consulting for Startups

Sales strategy consulting for startups is a service that helps new businesses develop and implement a sales strategy that will help them achieve their business goals. According to a report by Statista, in 2021, there were 4.5 million small businesses in the United States, which highlights the importance of sales strategy consulting for startups.

Sales strategy consulting firms work closely with startup founders and other key stakeholders to understand the business’s unique selling points, target market, and competition. Based on this understanding, they develop a sales strategy that will help the startup generate the revenue necessary to sustain and grow the business. This can include developing a sales process, identifying target markets, creating customer profiles, and providing training and coaching for the startup’s sales team.

According to a survey conducted by HubSpot, 30% of startups identified generating revenue as their biggest challenge. This is where sales strategy consulting can make a significant difference, by providing startups with the tools and strategies they need to generate more revenue and sustain their business.

Sales strategy consulting is not just about generating revenue, but also about helping startups build a strong foundation for future growth. According to a study by the Kauffman Foundation, 20% of new businesses fail in their first year, while 50% fail within five years. Sales strategy consulting can help startups avoid becoming part of these statistics by providing them with a well-defined sales strategy that can help them weather the challenges of the early stages of their business.

How Can Sales Strategy Consulting Help Your Startup? 5 Tips!

  1. Develop a sales strategy that is tailored to your business’s unique needs: Every business is unique, and a one-size-fits-all sales strategy is unlikely to be effective. Sales strategy consulting for startups ensures that the strategy developed is tailored to the specific needs of your business.
  2. Identify target markets and create customer profiles: Sales strategy consulting can help you identify your target markets and create customer profiles. By understanding who your customers are and what they need, you can develop a sales strategy that speaks to their needs and generates more revenue.                                   
  3. Create a sales process that works: A successful sales process is critical to the success of any business. Sales strategy consulting can help you develop a sales process that is effective and efficient, saving you time and resources.
  4. Train your sales team: Sales strategy consulting can provide training and coaching for your sales team. This training can help your sales team understand the sales process, build relationships with customers, and close more deals.
  5. Monitor and evaluate results: Finally, sales strategy consulting can help you monitor and evaluate the results of your sales strategy. By tracking key performance indicators (KPIs) and analyzing the results, you can identify areas for improvement and make adjustments to your sales strategy as necessary.

SUMMARY

Sales strategy consulting for startups is a valuable service that can help new businesses develop and implement a successful sales strategy. If you’re a startup looking to grow your business, consider working with a sales strategy consulting firm, The Zeroing Agency, and enhance your startup’s sales strategy with our expert sales consulting. Let us develop a custom strategy that aligns with your business objectives and sets you up for growth. CONTACT US today!

Sam Palazzolo, Managing Director

SKO Essentials for Sales Kickoff Success – 8 Tips + PDF Guide!

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The Point: Let’s face it – selling in recent years has been tough. The COVID-19 pandemic and its various delta variants have changed everything about our lives as we know it, as well as redefining the definition of being efficient in the field of sales. This is why sales calendars with a sales kickoff (SKO) at the beginning of the year are essential for starting the year off on the right foot. They’re the most important sales training event of the year where we recognize the successes of the previous year, discuss plans for the year ahead, and set the tone for key initiatives. But if you agree that these SKOs are important, why do so many miss the mark? In this article we’ll explore SKO Essentials for Sales Kickoff Success along with 8 Tips… Enjoy!

Tip of the Spear Ventures | The Zeroing Agency SKO Essentials for Sales Kickoff Success

Achieve Sales Kickoff (SKO) Liftoff!

Many of us choose to work at home, don’t make your usual in-person kickoff and put it to the internet. Take a look at the following essentials for creating the ideal online sales kickoff plan.

(Looking for additional tools to help you plan your SKO? Read our guide for how to organize the most effective virtual sales kickoff.)

Basics of the SKO Agenda

Making the schedule is the most crucial aspect of making plans for your SKO. It is possible to invite the right people and organize an ideal party – either in person or online, however if no one actually is able to take anything away then what’s the reason?

When we design an SKO plan at The Zeroing Agency, we concentrate on four goals:

  1. Believing in the mission
  2. Finding a balance between sales enablement, technology capabilities, and customer-centricity
  3. Motivated and energized people
  4. Encouragement of participation and networking with peers

Begin by thinking about what your sales teams must remember for the weeks and months following the event. You can then proceed from there.

8 Tips for Sales Kickoff Success

So with these four goals in mind, let’s go over the eight things to do for the successful sales kickoff!

1. The Importance of the Keynote

Every worthwhile SKO begins with a keynote presentation. This initial session sets the tone for the entire sales kickoff. A great keynote will leave sales reps motivated to attack their goals, while a bad keynote will have them looking at their phones (or the exits!) Make use of this initial session to inspire everyone to join the team and to be a part of the business. If everyone is enthusiastic about selling collectively, the aspirations of everyone feel more achievable. Get into the excitement in the beginning by bringing in a lively speaker (or two!)

Why would you want to engage an external speaker? At The Zeroing Agency, we’ve discovered that fresh external perspectives can make a huge impact. The investment in a topnotch keynote presenter will not only motivate and align all for success, but make a lasting impression (We still talk about a keynote presentation from famed Green Bay Packer – Bart Starr!)

2. Engage, Engage, and Engage!

Be it the main SKO session or Breakout sessions, a successful sales kickoff is similar to real estate, but instead of the secret being location, location, location its engage, engage, and engage! The bulk of your sales kickoff agenda will consist of breakouts, so keep these sessions engagement levels in mind as you plan not only the content but cadence. In SKOs we’ve observed that breakout sessions are typically 30 to 50 minutes in length. It’s possible to think about shorter sessions (think of TED Talks on a 10-15 minute timeframe) for those who want to cover more complex topics in a short amount of time. If you want to present more complex content, you’ll need more time. However, one of the biggest complaints from sales reps in post-SKO surveys was that there was too much content in too short a time period.

These breakout sessions should concentrate on your company’s biggest bets as well as how you can handle issues, and practical tips from your sales superstars. To keep breakouts interesting, you can organize hackathons in real-time, practice learning in role-plays, using live feedback, design authentic or fictional cases studies, and foster an element of competition with games and prizes. If you’re hosting diverse attendees from different departments or regions, you can arrange specific breakouts that follow these same guidelines. It is important that attendees walk away with the thought, “This was relevant – and I have learned something that I can use in my work today from participating.”

3. Ask Your Customers to Present

We’ve learned from our past SKOs that customer speakers are an evergreen favorite. We also know that customer testimonials are a key in providing social proof that your products/services work. So find out the reasons your customers picked your company and what is most important to them in their field as well as how they’d suggest that you interact with similar customers in the near future.

The stories they share can (should?) be the base for case studies in the course of your kickoff and sales initiative for the year. It is also possible to invite these customers to speak about their experiences at a deeper level during a breakout or even join virtual focus groups that provide immediate impact.

4. Give out Recognition and Celebrate Achievement

Let’s face it… The celebration of achievement is what sales reps most excitedly look forward to at an SKO. Honor this long-standing tradition by honoring sales reps and their major successes from the year before.

Know that recognition takes many forms for your sales reps. So make certain that all that are recognized can enjoy the celebration. Sales Kickoff meetings often overlook leveraging humor, so make certain you create some categories that are certain to bring laughter and joy among your staff. The recognition could include items such as extravagant headsets, gift cards, as well as engraved gifts (One of our clients does something A-M-A-Z-I-N-G!!! If you’d like to know what, email us at sales@tipofthespearventures.com).

5. Make Leaders a Focal Point on the Agenda

If you’re like the majority of sales teams, you’re on the verge of a schedule that are stuffed with meetings and you’re constantly in motion. Utilize this time where everyone is focussed on the same goal to hold discussions with the top leaders and talk about the goals of everyone for the year. Keep in mind that for some (or perhaps the majority), this will be their only opportunity to directly hear from organizational senior leadership.

6. Promote Consistency as a Focus.

A memorable sales kickoff unites everyone with a common objective. Therefore, there’s no better way to bring everyone together around the aim of creating more inclusive communities.

In your SKO, think about creating an affinity group or equality group organize a workshop to be better friends and create more inclusive team bonding events that aren’t centered around happy hours. For instance, random conversations groupings on video calls could enable members of the team to understand the perspectives of their less familiar colleagues.

7. Make Networking a Must

Don’t let this annual opportunity to network internally pass you by. Make it possible for your employees and leaders of different teams to get out of their networks and create valuable connections. Games for icebreakers such as speed dating-inspired coffee conversations and leaders-hosted meetings and greets help people get outside their circle of influence.

8. Add Community Support and Volunteer Opportunities

Add time to the schedule to allow groups to connect informally. It could be via online activities such as cooking classes or a murder-mystery escape rooms, or even volunteering for a special interest project. We love to include volunteer-based activities, for example creating greeting cards for the elderly in retirement communities during our kickoffs to ensure that participants can enjoy themselves while contributing to the communities they serve.

SUMMARY

In this article we’ve explored SKO Essentials for Sales Kickoff Success along with 8 Tips. As we mentioned before, let’s face it: selling in recent years has been tough. The COVID-19 pandemic and its various delta variants have changed everything about our lives as we know it, as well as redefining the definition of being efficient in the field of sales. This is why sales calendars with a sales kickoff (SKO) at the beginning of the year are essential for starting the year off on the right foot. They’re the most important sales training event of the year where we recognize the successes of the previous year, discuss plans for the year ahead, and set the tone for key initiatives. But if you agree that these SKOs are important, why do so many miss the mark?

The Sales Kickoff Success – 8 Tips listed above are only the beginning. We’ve got more information on how to host the best SKO in our book, Virtual Sales Kickoffs (Virtual SKOs): A Playbook. If you’d like more information on how this or how we can help, please Contact Us.

Sam Palazzolo

Sales On-Target Earnings (OTE) Compensation Plans

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The Point: The most frequently asked inquiries that we receive at The Zeroing Agency — Tip of the Spear Ventures’ consulting side of the firm — is regarding OTE or on-target earnings. It’s clear why, because if you show us a salespersons’s compensation plan, we’ll show you what it is that they are going to do (and what will get done as a result!) On-target earnings allow companies to better plan their budgets. Additionally it helps sales reps to know the amount they’ll be able to earn should they reach their sales goals. This in turn increases the motivation of both sales leaders and their sales representatives to help boost their efficiency, revenue and increase growth to make the most of OTE. However, there are many important factors that companies must be aware of when implementing OTE within their incentive compensation pay plans. If they do implement the OTE methodology improperly it could result in lower morale, low performance, and eventually the loss of revenue for the business. What factors should you take into consideration when you are using OTE? In this article, we’ll discuss the OTE considerations in greater detail and guide you through the process of creating an effective compensation plan with it… Enjoy!

What is OTE?

In simple phrases, OTE or on-target earnings is the total of a sales rep’s annual base salary as well as their on-target commission. Then, OTC or on-target commission is essentially the commission sales reps receive if they achieve their sales targets.

In simple words, OTE is the total amount of compensation that sales professionals are expected to receive if they meet the 100% mark of goals or the quotas. The majority of the time, this quota is going to be an annual number, instead of the weekly or monthly numbers.

That’s an enormous amount of information to decode. In order to understand the concept more clearly let’s examine an illustration. Suppose you post an advertisement in order to locate an employee for sales. You plan to give the employee a starting salary of $100,000, provided you can prove that they meet their annual sales target. The job description you include in your advertisement will typically mention the compensation for the position by the number “$100,000 OTE”.

That’s why that, if a salesperson is interviewed and is hired, they should realistically expect to make $100,000 annually. The compensation will be contingent upon them meeting 100 percent of their sales targets for the year. Remember, the on-target earnings (OTE) figure of $100,000 is only an approximate figure. It could be a bit off, but it could be higher or lower depending on their performance to goals.

Benefits of using On-Target Sales Earnings in Compensation

There are numerous advantages of using on-target earnings in your compensation program both for you as well as those who sell:

  • Forecasting Sales Commissions – If you are able to calculate on-target earnings you’ll be better placed to accurately forecast sales commissions. This will make it simpler to plan and budget your financials.
  • Estimating Earning Potential – Your sales reps using OTE allows them to see the exact amount they’ll be earning should they be able to meet their sales goals. Another benefit is that when you have an OTE is competitive sales reps will be motivated to reach their quotas.
  • The Process of Determining the Realistic Commission Rate – If you choose an OTE number that is both realistic and competitive and realistic, you’ll be able decide on a commission rate that is suitable. That is you’ll be in a position to decide on the appropriate base amount for the sales reps you employ.

Employing OTE as a Part of Your Incentive-based Compensation Plan

We’ve now covered what on-target earnings (OTE) are and the benefits it offers. Now it’s time to consider ways to utilize OTE to enhance your compensation strategy. There are three key aspects to take into consideration when you plan to employ this type of incentive structure for compensation:

  • Set the Compensation for OTE. As mentioned previously, OTE is the total of sales rep’s annual base salary as well as the commission on-target, OTE is the total earnings that sales reps will be capable of earning. This means that it is essential to get this figure correct if you wish to retain and attract the top talent.
  • Calculating the Pay Mix. This is simply the ratio of base salary to the on-target commission. It reveals sales reps the level of risk that comes in reaching their OTE. The higher the ratio, the greater the risk.
  • Quotas and Setting Sales Goals. These sales targets are the objectives which sales reps must achieve in order to earn the entire OTE as compensation. In this case, it is essential that the goals you set are accountable and achievable, or sales reps may lower them in line with the goals they receive.

Set the Compensation for OTE

In order to retain and attract the top-tier talent, it’s essential you get your OTE in order. The first thing you should be aware of is what your market-based compensation is for your particular sector. Sales reps have to feel as if they’re receiving an equivalent amount to employees of other companies. If they’re not and your OTE isn’t in line with other businesses in your industry, it will be difficult to hold your sales reps’ good qualities and turnover will result.

Be aware, there aren’t any strict and fast rules for calculating OTE. Therefore, it can vary depending on the industry you’re operating in, the kind of products you’re selling, the complexity of the sale, and the amount of expertise you’d like your sales reps to possess. In this case, a site like Glassdoor is a great resource. It can provide information about what market-based compensation plan for your job and the industry you work in looks like.

Another factor to take into consideration in determining the OTE must be the fact that your OTE needs to be similar to other sales and other non-sales positions within your business. The most important thing is to make sure that you provide similar pay rates for the same amount impact a particular job position can have on your business and its profit.

This means that you must be wary of overpaying or underpaying for the performance of your sales team. If you overpay you will incur costs for customer acquisition that will be excessively high. Likewise, underpaying can result in poor results, low morale, and lower retention rates for employees. In the end it’s all about finding the right balance.

Calculating the Pay Mix

As previously mentioned the Pay Mix is the ratio of the base salary to commission paid. The ratio determines what actual earnings will be for particular roles. Our experience suggests that OTE plans average 65% base salary and 35% commission. However, the Pay Mix ratio will vary based on the particular market or the expertise of the sales representative.

But the most important aspect to take into account when determining the Pay Mix ratio is the extent to which a sales representative is able to influence sales that, in turn alter the ratio. For instance, when a sales representative generally has no control over the result of a transaction, their base pay should comprise an increased portion in the OTE. If, however, the sales rep is able to significantly influence sales and influence the outcome of a sale, commissions should constitute more of the OTE.

Quotas and Setting Sales Goals

From a sales rep’s standpoint, one of the primary aspects they should consider when they’re evaluating their compensation plans are the sales targets, or the goal. In order to achieve the anticipated total salary (OTE) and to earn it, they must meet their sales targets. This means that sales targets must be achievable. However, if it’s not so, the sales representatives are likely to, as previously mentioned, simply reduce their sales. That is, they’ll calculate their pay by calculating their targets — More proof for the previously mentioned “show us a salespersons’s compensation plan, we’ll show you what it is that they are going to do (and what will get done as a result!)”

Based on our experiences, sales quotas must be achievable for 60 – 70 percent of your sales representatives. This gives the majority of them the chance for them to achieve their OTE. However, those who aren’t will realize the possibility of it. They’ll also be driven to be more efficient — Think “stretch” goals here!

However when your quotas and/or goals are not achievable in less than 60 percent, it’ll result in the opposite. The result is that morale overall will decline. If the percentage is higher than 70 percent, you’ll probably overpay for the performance.

Remember, when setting the OTE and setting the Pay Mix various factors can affect the quotas you set. In this case, the majority of companies begin with their historical performance, and then adjust the quotas according to the market conditions.

But, that means for more recent products and markets that are less developed this could make it more difficult to set limits. Considering the COVID-19 pandemic, this is an extremely important point. The most effective solution is to establish quarterly quotas , and then adjust them over the course of the year as information becomes available.

SUMMARY

The use of on-target earnings (OTE) in your compensation plans is a great option to improve the performance of your sales reps and encourage them to generate more sales. But, it is important to be careful when setting the OTE as well as the pay structure, and establish sales limits. Once you’ve finished this, you must determine the salary for each employee. This is where we can help. We can streamline the process of commissions for sales, which means you’ll be able to concentrate on developing your company.

We love helping businesses lessen the burden of the process of calculating sales commissions. If you’d like more information more about the concept of OTE and how we can assist you in improving your sales, we’d love to talk. Contact Us today to learn more.

Sam Palazzolo