August 8, 2022

The length of a sales compensation plan period in the biopharma and medical device industries is typically dictated by the length of the sell-in process for the product being promoted. Years ago, when data was slow to be gathered and computers took longer to process bonuses, it was not uncommon to see semester plan periods. However, for the reasons outlined below, these plan periods evolved into trimester and then quarterly plan periods. This shift also occurred for companies marketing medical device products that could be sold instantly (such as the lens market) and that cost less than a couple of thousand dollars. Only products with a lengthy sell-in process or devices that typically cost thousands of dollars continue to have trimester, semester, and even yearly sales incentive plan periods. In this blog post, we will explore the pros and cons of the two most common plan periods in life sciences: quarter and trimester.

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Quarterly Plan Periods

Dividing up the year into four three-month quarters tends to be the most commonly adopted plan period in the biopharma industry.

Pros of Quarterly Plan Periods
	Ability to shift emphasis. Quarterly plan periods enable companies with multiple products to shift the emphasis put on different products as the year progresses. This is especially useful for biopharma companies that introduce new products every couple of years and want to alter the emphasis that is to be placed on different products and lines of business throughout the year.
	High level of sales force engagement. A three-month plan period has been shown to keep the sales force’s feet to the fire. A sales representative cannot start a plan period slowly and expect to make up for it later in the plan period as one might with a trimester plan period. This is one of the main reasons that many companies adopt a quarterly plan period.
	Financial control. Quarters allow better control of financials. With a quarterly plan period, there are more periods in which financials, either high or low, can be corrected by adjusting goals upward or downward on products.
	Easier to make up for poor performance throughout year. Should a sales representative perform poorly in a plan period (perhaps because national goals are set too high), the sales representative has only one quarter of low bonuses—and has three other periods to make it up.
	Poor performance doesn’t last very long. If a sales representative is having a poor plan period, the plan period is over before the sales representative gives up on selling. (Refer to one of the cons of trimester plan periods in which a sales representative realizes early on that bonus will likely be very small, so quits selling the next two months in an effort to receive a lower goal next trimester.)
	Increased goal accuracy. Goal setting for a three-month plan period is more accurate than goal setting for a four-month plan period. The longer the plan period, the harder it is to set goals.
	More frequent payouts. Bonuses are paid more often, which sales representatives tend to prefer.

Cons of Quarterly Plan Periods
	Harder to make up for poor performance in a single plan period. Sales representatives do not have enough time in a single quarter to make up for a poor start.
	Increased workload (versus trimesters). The company and Sales Operations team specifically have to expend more effort into preparing and managing an additional plan period.

Trimester Plan Periods

Though not as common as quarterly plan periods, dividing up the year into three four-month trimesters has its own set of advantages and disadvantages.

Pros of Trimester Plan Periods
	Easier to make up for poor performance in a single plan period. A sales representative can have a poor start to a trimester and try to make up for it in the final three months of the trimester.
	Decreased workload (versus quarters). Preparing and managing a sales compensation plan made up of trimesters places 33% less of a burden on a company and its Sales Operations team than a quarterly plan.
	Size of the trimester bonus is larger than quarterly bonuses. The larger bonus that can be rewarded on a trimester plan results in greater sales force motivation.
	Ability to consider length of sell-in process. Some products face a longer sell-in process, such as rare and orphan disease products that require education not only on the product, but also the disease and its diagnosis. A longer plan period provides more time for sales to come in and thus offers more stability.

Cons of Trimester Plan Periods
	Less flexibility. The goal setting must be very accurate because the company does not have the strategic ability to make corrections as often as they are able to with a quarterly plan period.
	Lower levels of sales force engagement. It has been found that if goals are set too high for a trimester, the sales representatives frequently quit selling in the third and fourth months of the trimester. This reason as well as the loss of flexibility to make strategic corrections are the two main reasons that companies do not utilize the trimester plan period.
	Harder to make up for poor performance throughout year. Should a sales representative have a poor trimester, it represents a third of the representative’s year, which is difficult to make up with only two other trimesters.
	Decreased goal accuracy. Because trimester goal accuracy is worse than quarterly goal accuracy, more negative outcomes tend to happen with trimester plan periods than with quarters, such as runaway financials, sales representatives missing their target bonuses for the year, etc.

Conclusion

Although both quarterly plan periods and trimester plan periods have their own set of advantages and disadvantages, the quarterly plan period tends to be the winner in most cases. The increased accuracy of the goal setting, the ability to adjust product emphasis, and the greater financial control all make the quarterly plan period superior to the trimester plan period. Nevertheless, as discussed earlier, the best plan period length for a product depends on the length of the sell-in process and the cost of the product, causing many products to adopt trimester, semester and even yearly sales compensation plan periods.