sales comp guy logo

Sales Comp Guy

5 Keys to Setting Realistic Sales Objectives

183:906269490 • September 12, 2022

Be challenging, but not too challenging.

Choosing a sales objective may seem like the easiest part of the sales compensation plan, but it’s actually a deceptively complex process. Not only are there a number of variable factors to consider not just in choosing the type objective but also the size and scope of the objective. There’s also a lot at stake.


Of course, a good sales objective will motivate your sales force to drive your company’s revenue to higher profits. But it will also build trust between you and your salesperson. 


On the other hand, an unattainable objective will not only discourage your sales force, but also destroy trust. After all, if you train them, offer them an incentive, and then send them out to do an impossible job, they aren’t going to want to keep working for long. 


That said, here are five tips to keep in mind when setting your sales objectives:


Base it in Financial Reality


Before setting an objective, do your homework. Obviously, you’re hoping your salesperson will bring in more revenue for your company, but how much more? And will that target cover the fixed and variable costs associated with employing that salesperson until they can be productive? Take a real and conservative look at your current incoming revenue. Factor in the time it takes to onboard and train a new salesperson, any base pay you intend to provide, as well as bonuses and commissions. 


Taking the time to complete these steps will help you set a realistic financial objective and prevent a number of negative effects that come with poorly set objectives. You can read more about this process in
my book


Align it With the Sales Role


Ideally, you will have an objective in mind before hiring a salesperson, that way you can design the role specifically for the objective. If you need to shift objectives for an already existing salesperson, you will likely need to factor in additional training. 


For example, if your objective is increased sales revenue, your salesperson will need to have the training and power to close deals with existing accounts. If your objective is acquiring new leads, you’ll need train your salesperson in whatever method of lead generation your company is using as well as establish their incentive pay to reward for achieving the objective of acquiring new leads.   


Make Sure It’s Realistic


It’s important to find that balance between realistic and challenging when setting a sales target. If you have an objective that’s easy to hit and you’ve provided a competitive incentive for selling, you could quickly find yourself paying out more than you can afford in variable pay. On the other hand, if the objective is impossible to hit, your salesperson will eventually quit trying and you won’t have any results.


Consider utilizing the
S.M.A.R.T. acronym for setting goals: Specific, Measurable, Attainable, Relevant, and Time-Based. These components are helpful for any time of objective setting. You will want to follow when defining the type of measure but also when modeling out scenarios of performance before it is delivered as the quota.


Provide Tracking and Transparency


Be clear and transparent about the role of the salesperson and their objective in the overall financial state of the company. It’s a good idea to treat your salesperson as more of a partner than an employee.


By providing them with adequate
tracking mechanisms, they’ll be able to behave proactively and creatively in achieving their objective in a timely manner. This also gives them a sense of ownership in the outcome so that they will hold themselves accountable to results, freeing you up to manage other areas of the business.


Consider the Overachievers


If you haven’t yet considered your pay curve, it’s a good idea to take into account what happens after your salesperson meets the objective. You will want to understand how underperformance and overperformance impact pay and your underlying financials as an organization. If you’ve set your sales objective too low, you may need to consider
reducing accelerators, utilizing per deal caps, or setting organization-wide targets to manage costs associated with the incentive. 


Even if your sales objective is aggressive, you may still have a salesperson whose motivation surpasses the intensity of the objective. You want that sort of drive and ambition on your team, so tread lightly, as you don’t want to discourage your salesperson from pursuing targets aggressively. Remember that people respond to incentives, and you will want to think through the behavioral effects of the decision


Setting realistic objectives is just one part of the highly complex process of building a sales compensation plan. For a more robust walkthrough of the overall process, check out my book
Starting Simple: Sales Compensation.

By 183:906269490 March 17, 2025
Over the past few weeks, we’ve delved into six crucial aspects of best practices in sales compensation: culture, financial due diligence, job content, pay mix, objectives, and plan mechanics. Each of these elements plays a pivotal role in shaping an effective and motivating compensation plan. Today, we turn our attention to another key component—timing. Defining Performance Period and Payout Timing There are two key aspects of compensation timing that affect how effective your compensation plan is at helping your organization reach its goals. These are: Performance Period : The timeframe over which sales performance is measured in the compensation plan—monthly, quarterly, annually, or per deal. Payout timing: The timeframe when a salesperson receives incentive earnings associated with their level of performance. While these concepts are distinct, they work together to influence sales behavior, business cash flow, and overall organizational success. Aligning Performance Period and Payout Timing with Organizational Objectives A well-structured performance period and payout schedule will reinforce your organization’s goals. For example, if you’re focused on rapid sales cycles and high transaction volume, you’ll probably use a shorter performance period and frequent payout timing to keep things moving along. On the other hand, if you’re prioritizing long-term account growth, large enterprise deals, or strategic selling, you’ll probably want to utilize longer periods (quarterly or annually) to encourage sustained effort and deeper customer relationships. Motivating Sales Teams with the Right Timing Salespeople are naturally driven by immediate, tangible rewards. If the gap between effort and payout is too long, enthusiasm may decline as the connection between work and reward weakens. On the flip side, overly frequent payouts—such as daily or weekly—could lead to transactional thinking rather than strategic selling. This is especially true when there are more frequent pay periods with very small amounts of pay. So before setting your performance period and cadence for payout, it’s essential to ask yourself what kind of behavior you’re trying to reward in your salesperson, as well as the sales function required to execute on your specific market and strategy. For long sales cycles where frequent payout timing simply doesn’t make sense, you’ll need to balance that by making sure your salesperson is aligned with organizational goals and that the salesperson is able to achieve meaningful levels of performance (as well as payout amounts) within that performance period. Best Practices for Performance Period & Payout Timing Choosing the right combination of performance period and payout timing is a strategic decision that shapes sales behavior and business outcomes. When well-designed, this timing structure maintains motivation, supports financial sustainability, and aligns sales incentives with broader company goals. A few best practices prevail: Align the payout to as close to the performance event (deal closing or otherwise) as possible, conditional on company affordability/sustainability Ensure that the performance period selected is closely aligned with the average sales cycle length. Generally, if there is a very short sales cycle, then a short performance period with quick pay is expected. That does scale up to very long sales cycles and longer performance periods with lesser payout frequency. Most organizations are somewhere in between. Be sure to recognize that it is specific to the sales role and not the company as a whole.
By 183:906269490 March 3, 2025
In a way, we’ve already talked a lot about several components of sales incentive plan mechanics. We’ve covered the importance of culture , fundamental financial model ing, establishing job content , determining pay mix , and setting objectives . The next step will bring it all together. Some Important Sales Compensation Vocabulary We’ve previously described, at length, the two primary types of sales comp models (bonus plans and commission rate plans) as well as how to determine which plan best supports different sales roles. But there are a few other terms that are important to know when developing the underlying plan mechanics. The following list comes straight from my book Starting Simple: Sales Compensation . If you want a full but easy-to-understand breakdown of sales compensation, that book is the place to start. Accelerator--An increase in the rate of pay that occurs at a certain level of performance. Generally, this starts after the achievement of 100% of the target performance objective. Deal Cap--The maximum amount of pay on any single transaction Leverage--The sales incentive that would be paid out for performance between the target and the point of excellence. It is represented as a multiple of the target incentive Pay Curve--The slope of the line of the rate of pay throughout all levels of performance. Think of performance as the x-axis and payout as the y-axis. The pay curve represents the relationship between the two. In a fixed-rate plan, this is a straight line, representing a fixed rate of pay for every unit of measured performance (activity completed, dollar of revenue acquired, or percentage point of margin sold, etc.) Plan Cap--Maximum amount of pay under the construct of the plan Point of Excellence--The point on the pay curve that represents the 90th percentile of salespersons’ performance levels (should be greater than 100% of performance achievement) Rate of Pay--The amount of pay per unit of measurement. This encompasses the relationship between performance and payout at any point along the pay curve. Target--A point on the pay curve that represents 100% payout and 100% performance or (100%, 100%) Target Incentive--The sales incentive amount paid for achieving 100% of sales performance objectives Threshold--The point at which pay for performance starts. The threshold point should sit somewhere between 0% and 100% performance levels. It can be zero, which essentially means there is no threshold. Zero--The first point on the pay curve, represented by (0%,0%) for zero level of payout and zero level of performance Best Practices for Plan Mechanics A well-structured sales compensation plan aligns with your business objectives while keeping your team motivated. You need to balance risk and reward, ensuring that pay mix, thresholds, and accelerators drive the right behaviors. To evaluate whether your plan is driving the right behaviors, map your sales team’s performance along the pay curve—identifying where top, mid-level, and low performers fall. If most reps cluster near the threshold, the plan may not be motivating enough, while a heavy concentration at the high end could indicate overly generous payouts. A well-balanced distribution should show a clear progression, with incentives effectively encouraging continuous improvement and rewarding top achievers appropriately. Caps are controversial, and while they can help control costs, they can also discourage high performers. Accelerators, on the other hand, can be a powerful tool to motivate salespeople to exceed expectations. The key is to strike a balance—rewarding overachievement without creating unsustainable payout structures. Finally, sales compensation plans should evolve with business needs. In a future post, I’ll be talking about the importance of a regular review cadence for maintaining performance and fairness. When done right, plan mechanics create a system that doesn’t just pay salespeople but actively inspires them to excel.
By 183:906269490 January 31, 2025
Setting objectives is a constant balance between meeting your organizational goals and being realistic about the capabilities of your sales team. You want to be aggressive enough to reach revenue and profitability expectations as well as keep everyone motivated, but you don’t want to be so aggressive that your team feels it is impossible to succeed and just gives up. In part 5 of my Best Practices in Sales Compensation Series, we’ll go over some of the top things to consider for keeping your sales team engaged and successful. (Read Part 1 , Part 2 , Part 3 , and Part 4 ) When setting objectives for your organization, consider what you absolutely need versus the ideal you want; take into account the resources you have to work with (as well as the market situation and sales productivity); and create a target range ranging from easy to impossible—and place your target somewhere in the middle of that range. Types of Objectives There are several different types of objectives you might set for your sales reps. They can be sales process activities like making calls or qualifying leads. They can be progression milestones like hand-off triggers between internal teams or customer signoffs. But for our purposes, we’re going to focus on financial objectives such as revenue and profit. Best Practices for Setting Objectives Objectives need to align with organizational goals and provide achievable but challenging targets for the sales team. To accomplish this, consider these practices: Make sure that the salesperson has the ability to influence if not fully control, their capability to meet and exceed the objectives. Set realistic expectations. Unrealistic targets will stagnate your growth potential and give you a poor reputation with employees (as well as the labor market). Provide a clear and visible path to achieving the objective. Try to limit the quantity and types of objectives. More is not better. It’s better for a sales rep to be able to focus on a singular goal than to have their attention split in too many directions. Lastly, make a plan for what to do if your salesperson exceeds the target as well as underachieve target objective levels. These are just a few of the very important considerations in setting your objectives. Take some time to explore my blog or check out my books for a more in-depth look into sales compensation.
By 183:906269490 January 14, 2025
Best Practices in Sales Compensation Part 4
By 183:906269490 December 16, 2024
In my first Best Practices post, I talked about the importance of knowing what you can pay for your sales roles before worrying about what the market is saying. In my second post, I covered ways to utilize culture in a sales organization . The following Best Practice in sales compensation involves job content. Job content plays several roles in your compensation plan: 1. It gives your salesperson a guide to what success looks like in their role. 2. It gives you a guide to evaluating the performance of your salesperson. 3. It rationalizes differing levels of variable pay outcomes for varying performance levels. 4. It provides your organization with the structure needed to comply with any reporting, pay transparency, or other regulations. Hopefully, that’s enough to convince you of the importance of taking the time to define your new roles and revisit the definition of your existing roles. Now, here’s how job content actually does those things. Defining the job The first role of job content is to define the who, what, where, when, and how of the function. It can be tempting to borrow a job description from LinkedIn, Glassdoor, etc., with the assumption that the content will be similar enough to fit your needs. However, the way a specific role performs is unique to the organization it’s acting in, which is why it’s important to take the time to define the job from scratch. Here are the questions you should be answering in your job content: What does the person need to do on a daily basis? How does this individual pursue sales, and in what segment or with what type of customer? Where should they focus their time and attention when building a pipeline of deals? Who should they be interfacing with, both internally and externally? When do they engage with customers and/or prospects? What portion of the sales process do they own or support? How do they interface with and influence decision-makers? Now, even though I said to write your job description from scratch, that doesn’t mean this is the time or place to get too creative. Job seekers are going to be searching by job title or category, so it’s essential to stick to the common vernacular regarding industry jargon and expected job titles. Job Description: A Byproduct of Job Content Another positive outcome of creating job content for your roles is that you will have generated much of the information needed for a job description if or when you’re ready to hire. Information such as: Job duties and responsibilities that clarify the type of work and engagement with customers. Qualifications/Requirements that are both minimum and desired. Those include education, knowledge, skills, capabilities, and competencies. Performance measures of the role include items like achieving sales targets, new logo acquisition, development of pipeline, accuracy in forecasting, etc. With all of this information on file, it will not only be easier for you to prepare to hire for the roles you want, but it will also be easier to evaluate existing employees in those roles. Beyond all of that, you’ll be well prepared for competitive market research and establishing your variable pay program. I’ll be posting more best practices on the blog, but if you’re anxious to dive deeper into the subject of sales compensation, you can grab a copy of my book Starting Simple: Sales Compensation and consider working through the companion Workbook to build a sales compensation plan from scratch.
By 183:906269490 November 30, 2024
Best Practices in Sales Compensation Part 2
By 183:906269490 November 4, 2024
Best Practices in Sales Compensation Part 1
By 183:906269490 October 22, 2024
Aligning Compensation Strategies with Sales Leadership Objectives
By 183:906269490 September 9, 2024
Key Strategies to Align Your Sales Team for Success Next Year
By 183:906269490 August 26, 2024
Exploring the intricacies of sales compensation for specialists
Show More
Share by: