Communicating the New Sales Comp Plan: Key Steps Part 3

Communications Points

This is the third in a three-part series. Click here to read: Part I: Start Strong, or Part 2: Craft the Change Story.

See the Organization’s View

Company culture plays a huge role in making change. Some cultures operate on stability and are naturally change averse, while others are change tolerant and even change seeking. It’s important to know the organization’s and individuals’ comfort level with change in order to message and manage well.

Assume that most people will see any change as potentially negative. This is particularly true when it comes to compensation. From a sales organization view, unless the current compensation plan is a complete disaster, they often assume the only reason to change the plan is to manage pay or improve the company’s financial position. If you have a sales program that allows people to make money, and you want to make a change to compensation plan, you have to be crisp and clear about what those changes mean. Otherwise, the immediate thought process of a salesperson is, ‘They’re trying to figure out how to take money out of my family’s life,’” says Jeff Schmidt, global head of business continuity, security, and governance for BT Global Services.

Beyond risk, resistance also comes from reluctance to alter routines. If the new incentive plan steers the organization toward new products or perhaps selling to new customers beyond their current accounts, that can be plain uncomfortable.

In our work, we see that about 20 percent of an organization are acceptors and embrace the new plan without argument. Another 50 percent are observers who will wait and see. If the plan is designed, communicated, and managed well, this group will usually join the first group of acceptors. But as much as 30 percent of the organization may resist the new plan. The resistors range from passive resistors to active resistors.

You may recognize some of the passive resistance behaviors, which include apparent confusion, hesitancy to act, and lack of urgency. On the aggressive side, behaviors might include outright opposition and involvement in trying to change the course of the implementation by demonstrating why the program will not work. The good news is that most resistors tend to be on the passive side, although they are not always easy to identify and engage. The key to working with passive resistors is to connect, sense, and communicate at the field level to understand their resistance points before the implementation. If ignored, their resistance can become contagious. As for active resistors, they’ll test leadership’s resolve for change, as we’ll describe shortly.

 

 Contact me at mark.donnolo@salesglobe.com with any questions.

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Communicating the New Sales Comp Plan: Key Steps Part 2

Communications Points

This is the second in a series. Click here to read Part I: Start Strong.

Craft the Change Story

Looking back on the Revenue Roadmap and the C-Level Goals established at the beginning of the process can help the management team explain why it decided to change the sales compensation plan this year. Usually, the organization will make a plan adjustment if there is a change in sales strategy, a change in how the organization goes to market with its sales resources and sales process, a need to respond to a competitive situation, or if the plan simply isn’t doing what the organization intended and needs some adjustment or redesign.

The change story can be told in a variety of forms, including planned messages from leadership and informal hallway conversations. In any situation, the story should be concise, consistent, and positive. The story tellers, from CEO to first line sales managers, should be well-versed in the key messages and the range of possible questions. The components of the story include:

  • Why the change is happening. Where is the organization now, and why is this change important?
  • What is changing. Is it an overall change to the organization or a tactical change to a component of the sales compensation plan?
  • Who will be affected. Will this impact certain groups or the organization overall?
  • Where the change will take place. Is it happening in certain geographies first or will it be introduced as a big bang?
  • When the change will take place. Will it happen this year? How long will it take?

To craft the change story, go back to the C-Level Goal areas of Customer, Product, Coverage, Financial, and Talent. Draw out the messages from each area that should be communicated to the sales organization and use them as the elements of the change story.

At CA Technologies, the CEO communicates the strategic vision to the entire company and then allows the sales compensation team to show how the new plan connects to his strategy. “The CEO gave us a platform upon which to make any of the changes we need to: organizational, sales model, sales compensation. We were overly transparent against the strategy and the objectives. Then we as sales leaders could literally take that and run with it for changing the organization, and it worked beautiful, absolutely beautifully,” says BJ Schaknowski, vice president of solution provider sales at CA Technologies.

It’s human nature to resist change, so positioning your change story is key to moving the organization in the right direction. Think about how you might tell the story in one of four ways. Each method can be described by its timeframe and orientation toward pain or gain as shown in Figure 8-1. Many organizations want to communicate an aspirational story that excites the team about changing to capture future opportunities (quadrant one). A sales manager or sales rep hearing this message might find it worthwhile to be part of the dream as long as it’s within the not-too-distant-future and doesn’t require too much near-term sacrifice to her lifestyle.

If a rep hears a story about avoiding risk or great pain in the future (quadrant two), that may capture a little more of her attention. For example, an executive a few years ago described her company’s situation to me, saying, “It’s all comfortable now, but our competitors are encroaching on us. We’re like the big ship in the harbor having a party, and all the little speed boats are coming in around us, and they’re going to eventually overtake and board us. People need to clearly understand where we’re heading on our current track.” Future risk can be more motivational than future vision alone if the organization can understand the eventual threat.

Gaining some benefit in a shorter timeframe (quadrant three) can be a positive motivator to make a change, especially if it’s tangible and achievable. If a rep can picture her family in a better position as her kids get to college age, she’s likely to be fully on board and put in the hard work necessary to support the plan.

The greatest motivator for change, of course, is alleviating near-term pain (quadrant four). If the company has attempted to tell a quadrant two, risk reduction story and the organization hasn’t listened, events may have transpired and the message now may be, “If we don’t make this happen by next year, this organization may have to downsize half of our people.” To a member of the sales organization, change doesn’t look quite as scary at that point because the alternatives are worse. In this case, the rep may not be fully on board but she’s also proactively looking for ways to help.

 

Next week I’ll write about how to see the organization’s view. Contact me at mark.donnolo@salesglobe.com with any questions.

Communicating the New Sales Comp Plan: Key Steps Part I

Communications Points

Whether changing the sales compensation plan or making a change further upstream in the Revenue Roadmap, a change management plan with a heavy focus on communication will increase the likelihood of acceptance, and mitigate confusion in the sales organization. Doug Holland, director of HR and compensation for Manpower Group North America, says, “If we’re making a big change that’s going to affect a lot of people, the first question our CEO will ask is, ‘Why? What is the rationale for the change?’ His sensitivity is, ‘What is it going to do for the performance in the field?’  He’ll say to me things like, ‘You know Doug, if you present a compensation change for HR, marketing, finance, or IT, and it’s a bit disruptive, it’s not going to bother me. I understand that. But if you introduce a change that’s disruptive, in a bad way, in the field, that is going to bother me.’ That plan could be the greatest plan in the world. It almost doesn’t matter if people don’t understand it, if people don’t know how they’re going to grow their pay,” says Holland. It’s tempting to make one announcement or send out an email describing the new plan and consider it done. But don’t assume that because the people who designed the new plan understand it, that anyone else will. Real understanding – and the questions that pop up along the way from the end users – takes days, weeks, or sometimes months. Begin your change plan by looking at the entire process from evaluation, to plan inception, to design, to implementation. Put yourself in the shoes of the sales organization, concerned with their livelihood and any possible disruption, and develop your change plan to drive the strategy with the sales team in mind. When making your next change, consider the following six steps:

  1. Start strong. Conduct your due diligence to make sure the program is bullet-proof and ready to go.
  2. Craft the change story. Be honest about the reasons for the change, and develop a clear message around the C-level goals.
  3. See the organization’s view. Expect some resistance, and identify who those resisters might be so you can get them on board.
  4. Get the change forecast. Know your organization’s readiness for the change and your team’s resolve to see it through.
  5. Leverage the learning modes. Use multiple methods to communicate with the organization to increase the impact of your message.
  6. Follow the process. Begin communication early and follow your approach until well after introduction.

Start Strong Make sure you cover a few important checkpoints so the plan is ready for introduction. First, enlist the opinion leaders for input at the start of the process. Bring together not only executive stakeholders, but also highly-regarded representatives from the field who have a tactical operating view on the business. These opinion leaders can provide valuable input and help communicate the right messages to their peers. Second, pressure test the plan during the design phase. When the team has arrived at a good set of design drafts, expose the plan to a select group of managers or even top-performing reps for a cold look. This group could also include the opinion leaders. Pressure testing is most easily done in a small group setting or one-on-one. The objectives are to get beyond the team to see how the end users will see the plan. Ask them to react to it, describe how they think the organization might interpret it, and ask them to try and outsmart it to find the loopholes or behaviors the company may not want to motivate. This process also gains additional buy-in from the group because they’ve taken a role in the plan design. The goal is not to negotiate with them or change the design on the fly but to gather intelligence as the plan is finalized. Third, financially test the plan under a range of performance scenarios. Modeling at a high level by looking at target incentive, revenue, and cost of sales tells only part of the story. Payouts and cost of sales can vary dramatically depending upon the organization’s overall attainment of quota and how many reps attain quota. That’s because a sales compensation program often includes payout curves that reward at accelerated rates for high levels of achievement, and incorporates multiple measures that may pay independently from the primary revenue measure, So, very simply, the organization could reach its goal in aggregate but pay more or less than the targeted cost of sales based on how the team reached its goal. If the team reaches its goal on average, but does it with a combination of very high and very low performers with few average performers, then the plan may trigger upside accelerators, increasing the cost of sale for those high performers, while low performers may not cover the cost of their base salaries – a perfect storm. Know every financial angle of your plan to minimize the potential for surprises.   Next week I’ll write about how to craft the change story. Contact me at mark.donnolo@salesglobe.com with any questions.

From History to Opportunity: Five Quota Setting Methodologies

Quota Methodologies

Quota-setting methodologies vary based on the market and types of accounts. Approaches can range from one-size-fits-all, to a historic view to a forward-looking opportunity view.

  1. Flat quotas are simple and effective in the right situations. Organizations often start out this way or may use this approach in new markets it enters. Everybody gets the same quota because it is assumed that all opportunities and resources are equal. While this may seem like a primitive approach, it can be effective in environments with unconstrained opportunities where there is abundant sales potential and the capability of reps is similar. The flat quota approach is common in new business development situations where reps don’t have an existing base of business to manage and may have few boundaries to their sales opportunities. It’s survival of the fittest.
  2. Historic quotas are the most common in companies, yet they create some of the biggest issues by assuming that history is predictive of the future and of potential in a market. This approach creates quotas that recreate history. A majority of companies use a historic quota-setting process either primarily or in combination with other methods. While history is a good starting point, it should be enhanced by turning the attention to future opportunities.
  3. Market opportunity-driven quotas are developed by starting with historic information and building on it based on the characteristics of the market. Market opportunity might consider predictors of potential that indicate how much opportunity might reside in an account. For example, the number of employees at an account location may be correlated to revenue potential. Those indicators can become part of a larger predictive model that either estimates the potential of a territory or compares that territory with other territories to help allocate the goal correctly across those territories. This approach can be effective for a large number of accounts.
  4. Account opportunity-driven quotas consider characteristics of the accounts as well as the market. By looking at the sources of revenue retention, penetration, and new customer acquisition, and the existing and planned sales pipeline, a sales organization can build the account opportunity components, bottom-up. Those growth estimates can be compared with top-down intelligence on the overall market, and growth predictions. The company can also consider sales capacity and the capabilities of reps to capture that account opportunity.
  5. Account planning can be used for growth planning, coaching reps to the plan, and of course, setting quotas for the account. This process is effective in situations where there are a small number of large accounts. The account plan provides information on growth targets in the account as well as tactics the team will use to grow the customer relationship.

By considering and combining these methods the organization can develop a quota-setting approach that matches each type of account segment and can increase the opportunity to hit the company’s overall sales objective.

 

Next week I’ll begin a series about communicating the sales compensation plan and changes to the organization. Contact me at mark.donnolo@salesglobe.com with any questions.

Ten Success Factors for Better Quotas: Part 2

Quota Risks

This is the second in a two-part series of Ten Success Factors for Better Quotas. Click here for Part I.

 Not setting effective quotas can critically injure even the best sales compensation plans, according to SalesGlobe research, including de-motivation, missing growth targets, and loss of high performers within the sales organization. Below are five additional steps to consider when designing quotas for your sales organization. (You can find the first 5 here.)

  1. Move Beyond History

Most organizations set quotas by looking backwards. Historic sales performance may be the primary driver of the quota, which is usually determined by taking a snapshot of the most recent year’s performance and applying a fairly standard growth rate on top of that performance. This historic approach is the source of most performance penalties that simply add a bigger expectation on top of a rep that had a great sales year. Historic quota-setting may also create a “porpoise pattern,” where sales and quota attainment leap up and then dive in alternating years. For example, a rep with great revenue performance (a leap) in year one resulting in an inflated quota in year two will often have low attainment of that inflated quota (a dive) in year two. Of course, this may then lead to a lower quota in year three followed by another leap in great performance over that low quota. And so the pattern continues. Challenge your team to acknowledge history but to lean toward forward-looking indicators of market opportunity.

  1. Balance Market Opportunity with Sales Capacity

Market opportunity should be a primary driver of the quota. More specifically, territory opportunity relative to other similar territories can give you a good indication of what portion of the total goal should be allocated to each territory.

Indicators of territory opportunity may be characteristics of accounts that correlate with revenue potential. For instance, a company in the bar-code scanning business determined that the square footage of a retail grocery store and the number of beds in a hospital were both metrics that were predictive of the potential annual sales for its scanning solutions. By applying a formula to all customers and prospects in a market or territory, the company got a relative sense of the sales potential across all markets or territories. But that indicator of market opportunity was only half of the answer. The other half was the practical physical ability, or capacity, of the sales force to close a certain amount of business. This sales capacity considers the number of hours each rep works in a year, the percentage of that time that is spent actually selling versus handling other operations and administrative activities, and the productivity of those selling hours given the time it takes to manage or close an account and close rates.

Fifteen years ago, Jeff Connor, chief growth officer for ARAMARK, had a sales force that was cut from 25 reps to 15, but the quota went up. “The executive for whom I was working at the time had some bold leadership traits. He walked into the meeting and said, ‘I’m doing away with quotas. I don’t know what the right number is. I know you guys are the best of the best and it’s a big market. Now, my number, is $100 million, and there are 15 of you. So you can all go figure it out if you want. But there are no quotas, and I’m not measuring to a quota. I want to see what we’re capable of as a team,” Connor describes.

“And guess what happened that year?  That team sold about $127 million. It was the best number ever – highest per person – and we never set a quota for anybody. The organization had a target and there were a certain number of people, but there were no incentives at the target. The compensation plan paid off of what they drove home for the business. To some extent he set the people free. It was a powerful enabler to say to your people, ‘You’re the best of the best, and I just don’t know how good you can be.’ He’s a motivator and a very good team builder, and kind of an impassioned leader. I don’t think everybody can get away with that,” says Connor.

By understanding and balancing the two sides of market opportunity and sales capacity, you can get a multi-dimensional view on how to allocate the quota.

  1. Fit the Methodology to the Account Type

One quota-setting approach does not fit all situations. While a more analytically-driven, standardized quota may work well for small accounts with a transactional sales process, a more bottom-up market opportunity approach might be better suited for a mid-sized account segment. Near the top of the account pyramid, national account quotas may be more accurately based on the information and strategies developed in an account plan. That account plan might provide input for quotas and also serve as a planning and coaching tool for sales managers to use with their account managers. Apply an appropriate approach for each type of segment or market.

  1. Make Your Approach Scalable

A telecommunications organization we worked with had reengineered and piloted its new quota process that incorporated top-down and bottom-up inputs, predictive market data, and precise steps for the entire team to work through the process. It all worked well during the pilot phase only for the company to find out after full introduction that the process was just too complicated, delicate, and unwieldy. The process that worked perfectly in a contained environment just couldn’t scale in the organization without coming apart at the seams. Further, it was creating workload demands to manually manage steps and exceptions that weren’t captured in a non-scaled environment. Err toward the side of simplicity. Accounting for every possibility may not be much more accurate but can certainly be much more manpower-intensive than using a simpler, streamlined approach.

  1. Don’t Over, Over-Allocate

A sales leader in a Fortune 100 transportation company recently asked me a very straightforward question: “Why is it that our CFO reported to Wall Street that we were on plan for revenue for the quarter, yet leadership is beating on us because we’re behind plan in the field?” As we examined the question, the answer became clear. It was a case of over, over-allocation of the quota.

Over-allocation refers to the approach of taking the sales goal for the business overall and, as it is allocated to the next level of management, adding a little extra to that goal. The sum of all unique, non-overlapping front line sales quotas compared to the company’s goal is a simple measure of quota over-allocation. For example, a company with a $1 billion corporate goal with a sum of all front line quotas of $1.05 billion has over-allocated its goal by five percent. Most organizations over-allocate quotas by about three percent to five percent from top goal to front line. That little extra allocation acts like an insurance policy. If the manager has a sales position that remains unfilled for a period of time with no one to effectively cover that territory, the over-allocation makes up for some of that loss. If a rep falls dramatically short on his quota, the over-allocation also makes up for some of that performance shortfall.

Over-allocation, within limits, can keep the organization on-track with its quota. However, when the quota is over-allocated too much at too many levels, it can lead to distortion on the front-line. In the case of the transportation company, the company had over-allocated its goal to a point where the C-level and the front line had two different realities. The sun was shining at the C-level while the front line saw only cloudy skies. Keep your quota allocation trim so that executives and reps all participate in the company’s success.

 

Next week I’ll write about 5 different quota-setting methodologies. Contact me at mark.donnolo@salesglobe.com with any questions.

Your Sales Compensation Report Card

sales comp report card

Designing a great sales compensation program that integrates with the Revenue Roadmap can be complex and time consuming, but the return can be significant. Follow the link below to a free tool – your sales compensation report card.

http://salesglobe.com/report-card

So now is the moment of truth: How does your sales compensation plan hold up?

 

Let me know how your plan holds up! Next week I’ll begin a two-part series: Ten Success Factors for Better Quotas. Contact me at mark.donnolo@salesglobe.com with any questions.

The Six Dimensions of Sales Roles

6 Dimensions of Sales Roles

Defining sales roles has a direct connection to the sales compensation plan. When identifying those roles, consider six dimensions. A sales role (channel or job) is comprised of multiple factors that make it effective, yet can stretch its capabilities to a point that either maximizes or limits its effectiveness.  The factors below must be considered when structuring and managing sales roles. You can use these to define sales roles pretty specifically down to what you will need for the organization and for the compensation plan.

  1. Sales Strategy Responsibility

This dimension defines the type of customers the organization is targeting. Is the company retaining current customers? Is it penetrating current customers through either product penetration (selling more of the same products) or buyer penetration (getting additional buyers)? Is it pursuing customer acquisition? This combination of possibilities provides overall direction for the job.

  1. Product Responsibility

This dimension describes the products, services, and offers the job will bring to market. Does the rep sell one product, multiple products, or the whole portfolio? The more products each rep is asked to represent, the more his bandwidth is stretched. A product specialist, for example, should be focused and narrow. A rep selling the whole portfolio may need some overlay specialists for support, especially if it’s a complex offering.

  1. Market Segment and Channel Responsibility

For reps working directly with customers, this dimension identifies the groups and characteristics of those customers. Market segments can be defined as simply major accounts, key accounts, middle market accounts, and core accounts; or they might be defined by customers, values, or needs. Market segments may also be described vertically, such as healthcare or transportation, or a combination of these variables.

Channel responsibility refers to coverage and management of third party channels. An organization might use distributors, resellers, referral partners, or other types of third party businesses to help get to customers. In that case, it will usually use a role that works with its channel partners. In fact, it may need two roles: a channel acquisition role (someone to go out and acquire those relationships) and a channel management role (somebody to manage, cultivate and develop those relationships).

  1. Sales Process Responsibility

This dimension refers to the breadth of the sales process the job will span. The sales process may be expansive covering lead generation, qualification, solution design, proposal development, deal closing, and even implementation.

If you ask a sales person to do all of those things – going from lead generation all the way through the close and the implementation – it stretches his bandwidth. That requires a broad set of skills, as compared to having some jobs that are lead generators or maybe – odd concept – marketing generating an abundance of leads. One role may pick up qualified leads, close them, and turn them over to an implementation specialist. Many organizations over-simplify what’s really required in the sales process.

  1. Marketing, Technical, and Operations Responsibilities

Some jobs will have dual responsibilities, performing disparate functions. Some jobs are contaminated with other operations roles and have been cobbled together over time. Moving non-selling roles to other functions out of sales can help clean up the sales job and increase its effectiveness.

  1. Management Responsibility

This dimension identifies roles the job may have in managing other people in addition to selling. The classic jobs affected by management responsibilities are the selling sales manager and the selling branch manager. These combination roles often appear in organizations with emerging management levels. Having a seller straddle both sales and management is sometimes a first step toward pure management jobs that allows the organization to still attach a unique quota to the job and align its cost with a revenue stream. The reality is sharing a dual selling and management role can create conflicting priorities. A pure management role, effectively defined and staffed, can provide a much greater revenue impact through leadership and development of multiple sellers.

The big concept concerning sales roles dimensions is that the more a job is asked to do, the more stretched it gets, the less effective the job becomes. This customer coverage discipline of job definition is important to understand to make the organization more effective and to have a solid foundation for the compensation program. Once you decide which breeds of dogs your organization needs and clarify their priorities, it’s time to begin compensation plan design.

 

Next week I’ll write about how to differentiate your top performers. Contact me at mark.donnolo@salesglobe.com with any questions.

The Three Strategies for Revenue Growth

RPN

When companies grow from year to year, they don’t grow in a straight line. They hold onto some revenue from current customers, they lose some revenue and customers, and they grow in other areas. Analyzing the ebb and flow of revenue and profit can help a company understand how it grows, plan for future growth, align sales roles, and motivate the right results in those roles.

The dimensions of buyers (both current customers and prospects) and offers (current and new products or services) describe a range of possible revenue flow opportunities. Among the possibilities are really just three basic strategies.

  1. An organization can retain the revenue from its current customers, which is called retention selling. While it may not actually lose any customer companies from one year to the next, an organization will usually lose some of its current revenue from current offers. It’s deceptive. The customer remains, but some of the business is lost. In fact, the average business-to-business sales organization retains only about 84 percent of its prior year revenue. So, to grow it has to find new revenue.
  2. A company can grow revenue from its current customers, which is called penetration selling. Penetration selling breaks into two different types of selling. Buyer penetration is gaining additional buyers for the same product or service. For example, a shipping company that focuses on ground transportation would try to get more buyers within the same large customer account to use their services instead of another carrier or shipping method. Product penetration is growing with additional products the customer may not be purchasing. So that same shipping company might capture more current customer growth by selling its air shipping service to a customer that’s already using the ground service.
  3. A company can create revenue through new customer selling, which also breaks into two types. New competitive wins provide growth through new customers who are already purchasing similar products from competitors. The shipping company may win a new contract of international shipping from a competitor who held that business last year. New market selling is developing a new opportunity with a new customer that hasn’t purchased that product before. For example, the shipping company may offer logistics services to a new customer to help them improve the operations of their warehouse facilities. Of course this strategy could ultimately result in the company winning the customer’s shipping business, too.

This is a good tool to plan coverage and sales roles and determine what breeds of seller the organization needs.

 

Next week I’ll write about the six dimensions of sales roles. Contact me at mark.donnolo@salesglobe.com with any questions or visit www.SalesGlobe.com. 

 

Sales Compensation ROI: Not Just Your CFO’s Calculation Part I

Return on investment (ROI) pertains only to financial transactions such as acquisitions or product purchases, right? And, it’s really just a calculation that finance professionals use, right? Wrong.

Most C-level executives want to know the answer to two questions:

  1. What are we getting out of our sales compensation plan?
  2. How much does it cost us?

ROI has many definitions depending on the type of investment. The most common definition for sales compensation is productivity value divided by the resource costs that were committed.

Picture1

This sounds like a simple concept, however, similar to ideas like “strategy” and “change management,” sales compensation ROI is a grey area and not a simple task. Productivity value is a measure of a specific value or set of values that are derived from the compensation plan. These measures include many things beyond just financial metrics. For example, productivity value could include areas such as customer satisfaction, employee satisfaction, and product success in the marketplace. Resource costs are a measure of the financial costs invested in the compensation plans. These costs primarily include what sales professionals are paid. However, other important measures include investments made in process (approval and crediting processes, for example), talent acquisition in sales and support personnel, and tools and technology.

Below are the key drivers to develop your ROI definition – The 7 Essential Sales Compensation Questions.

Step 1: Why? Define the Strategy & Business Objectives

In simple terms, the strategy and business objectives are the company’s action plan to achieve its goals. The strategy is critical as it drives decisions on product focus, customers, and the go-to-market plan. Knowing and understanding this strategy will determine how your ROI definition is developed. For example, your company may be interested in growing revenue in a certain area of the business or focusing on a new product set. Metrics associated with the return on those facets of the business will drive how you develop what is important in your ROI definition. Your strategy may dictate that you need to invest more in an emerging market or technology that is new or different from your traditional business. In that case, you could calculate a separate ROI on those business lines or products in order to understand that specific return. Setting a company’s strategy is a collaborative exercise that evaluates goals broken out by customer, product, coverage, financial, and talent[1] and is clearly communicated throughout the sales and sales support organization. It is from this point that you can start to develop critical elements for your sales compensation plan.

 

Step 2: How? Sales Compensation Plan Alignment to the Strategy

The movie Moneyball told the story of how Billy Beane, manager of the Oakland A’s, achieved one of the longest winning streaks in history with one of the smallest budgets in baseball. He did this by focusing on the numbers alone – no one else was doing this. He invested in people and processes that supported new metrics as a recruiting and training strategy (on-base percentage and minimizing outs). Billy Beane’s strategy was clearly defined and the metrics heavily influenced the desired outcome. This Moneyball concept can be leveraged when aligning your sales compensation plan to your company strategy. Placing specific, identifiable elements in the plan that drive towards the overall strategy is critical to meeting your company’s objectives.

This seems simple, but we have found many instances of the sales compensation plans not aligning and often mis-aligning with the company’s strategy. For example, a company we have previously worked with had a strategy of driving long-term revenue growth. However, one of the largest and most lucrative components in its sales compensation plan was a one-time payment for the sale of products that encouraged the opposite – short-term revenue growth. This product represented a revenue line in the Profit & Loss statement that was not sustainable in long-term growth. This is a great example of a mis-alignment between the stated company strategy and the compensation plan. It is a well-known fact that the sales compensation plan will drive sales behavior. To ensure that the company is driving the right behavior, it is imperative that the sales compensation plan and ROI definition align with the strategy.

Step 3: Where?  Define Productivity Value –“The Numerator”

At SalesGlobe, we go beyond the basic definitions of ROI. The concept of moving deeper requires innovative thinking from finance and compensation leaders beyond traditional means. Traditionally, when we ask finance leaders how they would measure sales force effectiveness and productivity (i.e. numerator of equation) it would be the top-line of all financial statements: revenue. Instead ask: what does revenue mean?

  • Overall Revenue – The true top-line number impact.
  • Retention Revenue – Repeat revenue from existing customers. This revenue is a result of strong account management in key accounts focusing on customer satisfaction.
  • Penetration Revenue – New revenue from existing customers. This revenue is the result of a sales person focusing on developing new relationships or new products in a current account.
  • New Revenue – New revenue from new customer. This revenue is result of a sales person’s efforts with relationships, acquisitions, and new opportunities outside of the current accounts.

These different revenue components demonstrate innovative ways to redefine productivity value in terms of revenue. Company strategy will dictate which revenue component is most critical. There may be multiple ROI calculations if multiple revenue components are critical. For example, if new revenue is a focus, the ROI calculation would take new revenue divided by the resource cost specifically focused on new customer acquisition. An example of a calculation is

Picture3

In addition, penetration revenue may be important for an account manager role. A separate ROI calculation could be used for this plan that divides penetration revenue for these accounts by account manager resource costs. An example of this calculation is

Picture4

Regardless of the financial measure, companies should consider categories that align to their strategy. For example, it may be important to segregate by product type, accounts, geographies, or target markets. Whether it is specific type of revenue, operating income, profit/margins, volume of widgets sold, or net present value of customers, the productivity value should tie back to the strategy and be a major component of the sales compensation plan. It is recommended that the measures are quantifiable financial measures. However, there are other important considerations for productivity value outside of more traditional financial measures. While sometimes difficult to measure in relation to a sales compensation plan impact, these measures include brand awareness, customer satisfaction, net promoter scores (NPS), low turnover, or employee satisfaction. In fact, customer satisfaction measures can be broken down into categories related specifically to sales that will provide quantifiable value. For example, surveys can be administered to customers to determine their satisfaction with the sales professionals – their knowledge of the product, their confidence, their ability to understand the customer’s needs, etc. This feedback ties directly back the sales professionals’ motivation, happiness, and understanding of how they are paid. Another measure of a good compensation plan is essentially an NPS among sales professionals. Would your sales professionals recommend your company to other sales professionals in the market?  This, too, can create brand awareness in the marketplace.

 

Next week I’ll continue to write about how to calculate the ROI of your sales compensation plan. Contact me at mark.donnolo@salesglobe.com with any questions.

 

[1] Donnolo, Mark.  What Your CEO Needs to Know About Sales Compensation. New York, NY: AMACOM.

 

The Sales Compensation Diamond Part 3: Operating For Results

Sales Comp Diamond

 

This is the third in a three-part series of The Sales Compensation Diamond – evaluating and designing a best-in-class sales compensation program. Click here for Part I: Framing the Plan or here for Part 2: Linking Pay and Performance.

10. Institute the Governance Process

Beyond the core design of the sales compensation plan are processes and policies for operating the broader program. A good governance process is like the constitution of the sales compensation plan that advances it from a set of plans to an effective and impactful program that helps the company grow. Without a clear approach to governance, the organization will probably create the governing laws throughout the year as it goes, sometimes in a reactive mode.

At their worst, some of these situations can create serious liability for the company in the form of employee challenges or suits for disagreements and misinterpretations of the plan. We’ve all heard of courts awarding millions in favor of sales employees who were bilked out of commissions for a major deal that the company thought was outside of the reps’ control and outside of the plan.  Is there a well-defined Sales Compensation Constitution? Does it consider the wealth of information the company likely has about past plan operations practices? Is the governance process clear or subject to interpretation, opening the company to increased risk?

11. Operate the Program

With the sales compensation program developed, the sales organization is ready to operate.  The first step is communications and roll-out. Actually, communications should start back during the plan evaluation process, with employee and stakeholder input, and continue through the design process with testing and socialization. If the communications process starts with the program introduction, the leadership team may be in a catch-up position.

Operating the program throughout the year will draw from all of the strategic connections made, components designed, and governance established. From a tactical standpoint, technology may also be leveraged to track performance, administer pay, and provide a communications portal for the reps and management.

12. Evaluate the Program

Program evaluation should be an ongoing and regular process throughout the year, drawing upon the dashboard and tools to monitor relationships between pay and performance, attainment of goals, differentiation of high and low performers. How does the program operate now? What improvements can be made? How is the plan communicated to our participants? What is the support process to regularly inform and reinforce our messages? Is there a regular plan evaluation process installed to view the performance and impact of the plan at any time, or is it a mad scramble to compile pieces of information from different sources?

Keep this process in your pocket; even have it laminated for your team, because we guarantee you’ll refer back to it, especially when you get deep in the conversations on design and analysis. One of the keys to great sales compensation design is having a playbook for your team that everyone references to make sure you’ve considered each step. With your team’s playbook defined, you can then layer in your strategic alignments, business performance and results, best practices from similar businesses, and the creativity you’ll need to develop an impactful solution for your business.

Next week I’ll begin a two-part series about how to calculate the ROI of your sales compensation plan. Contact me at mark.donnolo@salesglobe.com with any questions.

 

The Sales Compensation Diamond Part 2: Linking Pay and Performance

Sales Comp Diamond

This is the second in a three-part series of The Sales Compensation Diamond – evaluating and designing a best-in-class sales compensation program. Click here for Part I: Framing the Plan.

Linking pay and performance actually begins with performance thresholds, which we covered last week. The next step is to develop the measures.

  1. Develop Measures and Priorities

Performance measures define the focus areas that are most important for each role. Each measure should represent the most significant pieces of the sales strategy that the role can control. A challenge for many organizations is determining which few of many possible measures should be included in the sales compensation plan, which should be part of the performance management program, and which should simply be core expectations of that job. Do the measures represent the top two or three financial and strategic priorities for each job? Has the message of the plan been diluted with too many measures, creating a buffet plan from which reps can pick and choose? Do reps have significant control over each measure in their plans?

  1. Set Levels and Timing

            For each measure, the organization must define the level at which that measure will be tracked for the plan. For example the organization may define a revenue measure for a sales rep at an individual level or a region level. Each measure will also be measured and paid on a certain timeframe, for example monthly or quarterly. The decisions around measurement levels and timing can have a direct impact on rep behavior. Measure too high and the rep may have little control. Measure too frequently and the cycle may be out of synch with a long sales process. Do our measurement levels match with reps’ ability to impact those measures? Does the frequency of our measurement and payment match the rhythm of the sales cycle or it unnaturally speeding or slowing the cycle?

  1. Design Mechanics

Mechanics create the connection between performance and pay. It’s the area most sales executives will jump to first rather than working through the previous steps. If your team is starting here, then they’ve missed half the process. While mechanics can seem complex with various rates, hurdles, gates, accelerators, and point systems, they can be divided into three types. A rate-based mechanic (also known as a commission) usually pays a certain percentage of revenue or gross profit, or a certain dollar amount per unit of sale. A quota-based mechanic typically pays a target incentive for reaching a specific quota or goal and may scale its payout above and below that performance level. A link creates a relationship and interdependency between two measures or mechanics. For example, attainment of a goal for a product mix measure may result in a multiplier that links and magnifies the payout of a total revenue commission. Are the plan mechanics easy to understand and calculate? Do they create an alignment to goal attainment or can a rep simply earn to a level where she’s comfortable? Are old commission rate structures causing the organization to work backwards by structuring territories (an upstream discipline) to manage pay levels (a downstream discipline)?

  1. Align the Team

            A full sales compensation program will include a range of sales, sales support, and management roles. To work together as a team, plan designs must interface as a complete system. This alignment point checks for how sellers will work together as teammates and peers in the sales process that may include business developers, account managers, field representatives, product and market specialists, sales support, and channel partners. This alignment point also checks for vertical integration from the front line up through each layer of management. Does the program promote teamwork or does it have points of potential conflict? Are managers and the front line operating with congruent measures or are there priorities not intersecting?

  1. Set Objectives and Quotas

Quotas are the linchpin between the sales compensation plan and performance. Objectives and quotas should be market based, representing the relative opportunity in each account assignment or territory, and be created with a process that’s well-understood by reps, optimally incorporating their input. Over time, quota processes for an organization will usually move from more internally or historically-based approaches to more market-based approaches as the market and organization become more developed. In early stage companies or in newer markets, an organization may allocate the same goal to each rep, with the assumption that each has similar market opportunity and sales capability. While this may hold true over a period of years for a new business developer with an un-bounded territory, usually the normal growth of accounts will accumulate to create an installed base of recurring or expected revenue for each rep that will vary by territory or account assignment. Reps with more established accounts may carry a larger installed revenue base than those with newer accounts.

For many companies, looking at historic performance and projecting a trend forward seems to work for a period of time. However, they quickly learn that they’re either saddling their highest performers with ever-increasing goals or they’re overpaying reps who manage large bases of slow growth recurring revenue while under rewarding the brave new business developers bringing in new customers. Does each rep own a portion of the total business plan that represents a stretch level of achievement? Are quotas forward-looking or steeped in history? Do reps understand and buy-in to the objective setting process?

 

Next week I’ll write about the final step in the sales compensation design process: operating for results. Contact me at mark.donnolo@salesglobe.com with any questions.

 

Aligning Sales Compensation to the Sales Strategy

Revenue Roadmap“I like to say that the comp plan is the caboose, not the engine,” says Doug Holland, director of HR and compensation at Manpower. “Compensation should never be driving the strategy. The strategy drives the compensation. It’s incredible, especially in times of stress, how that message can kind of get lost. Comp issues are often symptoms of bigger problems, and it’s the easiest, most tangible thing to look at. The challenge is, do we have the right job designs? Do we have the right people? Those are harder conversations. That’s often the struggle with comp plans.”

 

When thinking about sales strategy and sales compensation, it’s critical to have a framework. We developed the Revenue Roadmap from our decades of work with hundreds of high performing sales organizations to be that framework. The Revenue Roadmap identifies four major layers, or competency areas, and 16 related disciplines that must connect for the organization to grow profitably,

 

Insight pertains to understanding the market and competitors and how the business is performing. Insight is the highest level competency: understanding the voice of the customer, the macro market, competitor moves, and the performance of the business. That insight will drive certain decisions to the next downstream level, which is sales strategy. Insight includes listening to the voice of the customer; considering the macro market environment; understand competitors’ strategy; and understanding your historical performance as a business.

 

Sales Strategy defines the sales organization’s action plan to achieve its goal. The sales strategy will drive decisions concerning product and service focus, concentration on certain markets, value propositions, and the resulting approach to market. Strategy includes defining the strategic products and services; segmentation and targeting; account planning; and value proposition.

When developing the approach to market, sales leaders should incorporate decisions about product, service, target segments, value propositions, and potential sales resources into a plan that can be executed by the sales organization. The customer coverage layer converts that plan into action.

Customer Coverage defines how the organization will use its channels, roles, processes, and resources to go to market. Customer coverage includes sales channels (third party resellers, referral partners, retailers, or company sales force); sales roles; sales processes; and sales deployment. Sales channels and sales roles integrate with the processes for working with customers. In fact, the best customer coverage models are built from the customer’s buying process with a sales process and roles that reflect how the customer prefers to work. Sales processes lay out the common approaches for how the sales team identifies prospects, qualifies opportunities, develops solutions, manages the momentum, closes the sale, and implements the product or service for the customer.

Enablement supports all of the upstream disciplines within Customer Coverage, Sales Strategy, and Insight. Enablement includes areas such as incentive compensation and quotas, which aligns sellers to the sales strategy. It includes recruiting and retention, which define the current inventory of talent and determine how the organization is going to attract and retain the right talent for the long term.  Training and development builds the capabilities of the organization for people currently in their jobs and in junior roles that will progress into key sales roles. Tools and technology provide leverage by enhancing the effectiveness of gaining insight and implementing the organization’s decisions around sales strategy, customer coverage, and enablement.

Jeff Connor, chief growth officer for ARAMARK, a global provider of food services, facilities management, and uniforms, is involved in the sales compensation process. “People confuse incentives with alignment, and they jump to incentives as the answer, as opposed to the hard work of alignment,” he says. “When you look at the Revenue Roadmap, sales and incentive compensation is at the bottom. In my experience, when you talk sales compensation everybody wants to just take big business objectives and assign incentives, as if the sales people will go after anything where there’s a buck.

“In reality, anybody who’s every worked on sales comp knows it doesn’t operate like that. The alignment work – getting the correct insight, aligning it to the sales strategy – has to happen first. The last think you do at the end of the day is work on the incentive plan. Confusing incentives for alignment happens all the time. People just go right to the ideas without understanding context. I think this idea of alignment is really important.”

The Revenue Roadmap helps a company to align its strengths and ensure everyone is firing on all cylinders. While it begins with Insight, all 16 disciplines are connected, and the decisions and actions flow from one to the next. When looking at sales compensation it helps to know where it fits within the overall framework, downstream from sales strategy and customer coverage. That’s why issues in the upstream disciplines will show up as symptoms in the sales compensation plan.

C-Level in Sales Comp: Getting Involved and Supporting the Program

In order for sales compensation to work, the C-level goals of the company have to be incorporated. But at what point should the C-level get involved to communicate those goals?

Certainly at the beginning of the process, to discuss strategic direction and short and long term goals. And in fact, 23 percent of C-levels participate periodically in design team meetings, according to a recent SalesGlobe survey. However, most C-levels and their teams give caution about getting too involved in the details. It pulls the C-level out of his area of strength and sometimes turns him into the bull in the China shop. About 36 percent of C-levels get involved in the details occasionally, but very few (about five percent) get involved in the details frequently. For the inquisitive, high-IQ CEO or president, it takes a certain level of self-control, and team reinforcement to prevent this from happening.

The head of sales compensation at a large software company limits the number of design options he shows the CEO, in order to prevent him from spending too much time on the details. “It works very well,” he said, because, “too much information and too many options can be confusing. But our CEO got involved this year at the end of the process. We were pretty much done with the plans, and then all of a sudden he wanted to take a look at them. He comes at it with a very different style. …We had to change the plans, and it took us another month and a half to get them approved, which made it interesting. He was definitely involved to a degree this year to where next year, we’ll integrate his expectations before starting the design.”

In our study, the more than 50 companies we examined that had a blend of C-level involvement had an average three-year compound annual growth rate of approximately 7.5 percent compared to the Fortune 500, which had growth of about half a percent and the Fortune 100 which had growth of  about 2 percent over the same period ending 2012.

While the right type of C-level involvement in incentive plans is certainly not the primary cause of higher growth, it is likely indicative of greater C-level involvement in the workings of the sales organization overall and the practical drivers of growth.

Join us for a complimentary webinar today, September 17, 2013, at 2:00 PM eastern, on making the C-level to street level connection through your sales compensation plan. Or, contact us at Mark.Donnolo@salesglobe.com for a recording of the webinar.

 

Mark Donnolo is the managing partner of SalesGlobe and author of What Your CEO Needs to Know About Sales Compensation. To learn more, visit SalesGlobe

C-Level in Sales Comp– Providing Strategic Direction

Picture1C-level executives (CEOs, COOs, CSOs, CMOs, and presidents,) get involved in various ways during the sales compensation process. Sometimes, as you may have seen in your own experiences, it’s not in the optimal way. Too much too late can wreak havoc on the design process. It can also undermine the heavy lifting already done by the design team and the confidence the C-level has placed in the team.

On the other hand, zero C-level involvement isn’t the right strategy, either. While the compensation design team may be brilliant, a brilliant sales compensation plan must line up with the vision for company-wide growth, which most often must come directly from the corner office.

We recently looked at C-level participation across a range of companies and found that high-value involvement peaks at the start of the process to provide strategic direction, at occasional review points to keep current and test the team, and again towards the end to review, approve, and support the plan from an executive level.

 From our research, 82 percent of C-level executives provide strategic direction on the priorities of the business relative to sales. These are the C-Level Goals described last week. Fifty-five percent also provide direction on how these strategies should be emphasized in the sales compensation plan.

Jeff Connor, chief growth officer for ARAMARK, describes his strategic involvement: “My role, at the end of the day, is for sales to function as a center of excellence.  I sit down with the people and make sure that we’re thoughtful about the strategy, the insights we’re building off of. I look at all the comp plans from a benchmark perspective and to try to help people understand whether they align with the strategy.

“Recently a business unit was looking at the Insight area, to use the Revenue Roadmap, and the strategic alignment,” Connor explains. “They built a model and straw person example. When I got involved my first role was to push and poke around the model to see if in fact it makes sense. Another thing I do, because I grew up here and was a direct seller for nine years, is to always put myself in the shoes of a sales executive. Do I understand it? Is it simple? Are the incentives things that I can control?”

How have you seen the C-Level successfully – or not – offer strategic direction in the sales comp plan?

Mark Donnolo is the managing partner of SalesGlobe and author of What Your CEO Needs to Know About Sales Compensation. To learn more, visit SalesGlobe.

 

 

 

C-Level Involvement in the Sales Compensation Process

Picture2As sales executives determine priorities for their sales compensation, they need to set their C-level goals. These will define the major priorities for the organization that will be converted to the sales compensation plan. Those priorities provide clarity for the behaviors the plan’s going to drive in the organization.

While the Revenue Roadmap defines all our possible destinations, the following dimensions help us to make the right strategic alignments and stay on track.

There are five C-level goal areas that can describe our strategy. Articulating these from the C-level to the organization helps to simplify the critical few from the trivial many.

Most organizations can concentrate on building programs that support these five major areas.

  1. Customer. The Customer dimension describes priorities in terms of buyer types and segments. Who are the right types of companies and buyers for our business?
  2. Product. The Product dimension identifies which offers will get the most focus. What products and services should be emphasized? Which are strategic and which are critical for cash flow? What are the priorities for cross selling?
  3. Coverage. The Coverage dimension articulates the major methods of matching sales resources to each customer segment. What are the routes to market? What is the role of third-party channels? What will the sales organization look like?
  4. Financial. The Financial dimension specifies monetary goals. What growth results are necessary for revenue, profit, and market share? How is the return on investment measured, with improvements in the organization and sales programs?
  5. Talent. The Talent dimension defines who the sales organization needs in its coverage roles to reach its goals. What types of skills will execute the strategy? What’s the talent inventory? Where does the organization need to build strength? Where do we need to source new talent?

Looking at the complexities of the growth plan, setting the priorities around the Customer, Product, Coverage, Financial, and Talent goals can provide clear direction for a range of sales effectiveness programs, including sales compensation.

Mark Donnolo is the managing partner of SalesGlobe and author of What Your CEO Needs to Know About Sales Compensation. To learn more, visit SalesGlobe

The Sales Comp Report Card

Report CardIt’s back to school time, so let’s talk report cards. Specifically, (honestly) how would you grade your current sales comp program? What about the one you’re designing for next year?

Designing a great sales compensation program that connects your company’s business strategy with your front line sales reps – a sales comp plan that makes the front line do what drives revenue for the business – can be complex and time consuming. But the return can be significant.

When we wrote “What Your CEO Needs to Know About Sales Compensation,” we developed a Sales Compensation Report Card. The idea is to assess your sales comp program on how well it matches up to five different factors:

 

 

1. C-Level Goals and Sales Roles

2. Framing the Plan

3. Linking Pay and Performance

4. Aligning the Team and Financials

5. Operating for Results

 

You can take SalesGlobe’s Sales Comp Report Card here, and see how your scores match up to other companies’.

For each of the five categories in the report card identify your lowest grade and determine specific actions you can take to improve that grade.

Drop us a note here or at mark.donnolo@salesglobe.com and let us know what you think of your results.

 

Best of luck,

Mark

 

 

To learn more, visit us at SalesGlobe or order a copy of our book, “What Your CEO Needs to Know About Sales Compensation.” 

Four Big Needs for Effective Sales

Go ahead and get excited about this.

When we talk about the Revenue Roadmap, people get excited. There’s a physical change in the room. People lean in, sit on the edges of their chairs, and put down phones.

I’m not kidding.

Revenue RoadmapWhenever we discuss the Revenue Roadmap, sales leaders instantly recognize a plan – a map – a well organized set of ideas that are crucial to effective sales. The ideas below are in top-to-bottom order, too. You need to have Insight on your customers and your business before you can move on to your Sales Strategy, and so on. We find that when sales organizations try to tackle one of the lower levels – Enablement, for example, which includes training and sales compensation – without carefully reviewing the upper disciplines, the solution won’t be as effective. It sounds obvious – you can’t have a great sales comp plan unless you understand the sales strategy, and you can’t have a great sales strategy unless you understand your customers’ needs – but you’d be surprised how many sales organizations operate without going through each of these disciplines.

So here they are. Let us know what you think.

 

Insight

The first layer of the Revenue Roadmap, insight, pertains to understanding the market and competitors and how the business is performing. Insight is the highest level competency: understanding the voice of the customer, the macro market, competitor moves, and the performance of the business. That insight will drive certain decisions to the next downstream level, which is sales strategy.

Listening to the voice of the customer is a critical starting point. Sales leaders must understand the needs and expectations of their customers and their performance relative to those expectations. That insight allows leaders to see any gaps and determine where they can improve value proposition, sales coverage, and sales process.

Sales leaders also need to consider what’s going on in the macro market environment, especially as it relates to their industry. Certain shifts in the economic environment can – over the long term – drive decisions about the sales strategy and how they might plan for where the market is going, as opposed to where they are right now.

It’s essential to know how competitors are performing from a growth and financial perspective. Sales leaders also have to understand their competitors’ offers to the market and how they are positioning their products and services.

Finally, sales leaders should look at the company’s historic and projected revenue and profit performance. This evaluation should consider whether growth has come through the retention of current customer revenue, the penetration of customers through increased usage or additional products, or the acquisition of new customers. By understanding the business performance they can see where they’ve been strong and where they’ve been weak, and they can adjust their sales strategy accordingly.

Sales Strategy

The second layer, sales strategy, defines the sales organization’s action plan to achieve its goal. The sales strategy will drive decisions concerning product and service focus, concentration on certain markets, value propositions, and the resulting approach to market.

First and foremost to the strategy, it’s critical to define the core and strategic products and services the business provides. In many companies these are developed based on the needs of certain customer segments. Too often however, products or services are internally driven and may not align naturally with customer needs, requiring a significant change in the offer or value proposition.

The organization determines how it will organize and prioritize customers and prospects through its segmentation and targeting. The most effective segmentation and targeting considers characteristics such as customer industry, sales potential, profitability, common needs, and overall fit with the sales organization’s business.

It’s important that segmentation and targeting flow into a plan that’s actionable by the sales organization. Simply defining the segment at a high level is not going to answer the sales rep’s question “Who do I go see on Monday morning?”

The value proposition goes beyond what the sales organization communicates to customers and articulates the organization’s understanding of the customer’s business and issues, what the organization can accomplish for the customer, and how the organization differentiates itself from the competition. The highest level value proposition is usually communicated at a company level. To be effective for sales however, the organization must convert its value proposition to sales messages that can be communicated at the segment level, customer level, and deal level to adapt to changing situations and customer needs.

When developing the approach to market, sales leaders should incorporate decisions about product, service, target segments, value propositions, and potential sales resources into a plan that can be executed by the sales organization. The customer coverage layer converts that plan into action..

Customer Coverage

Customer coverage, the third layer, defines how the organization will use its channels, roles, processes, and resources to go to market.

Sales channels outline the overall routes to market, whether they’re third party companies such as resellers, referral partners, retailers, or whether they’re part of the company sales force which could include a range of sales jobs. Sales leaders need to base the selection of their sales channel mix on factors like how the customer prefers to buy, how channel partners might improve the overall product offer, their ability to reach customers in different markets, and the financial efficiency of using lower cost channels to reach certain customers or conduct certain types of sales or service transactions.

Within sales roles and structure sales leaders must consider the types of sales and support jobs they’re going to use and how the organization is structured around those jobs. Sales jobs typically will align to customer segments and can range from global account management to field sales to inside sales. The structure may be developed around key segments – for example, the telecommunications industry or major accounts. It may also be defined around certain geographies, functional roles, or some combination.

Sales channels and sales roles integrate with the processes for working with customers. In fact, the best customer coverage models are built from the customer’s buying process with a sales process and roles that reflect how the customer prefers to work. Sales processes lay out the common approaches for how the sales team  identifies prospects, qualifies opportunities, develops solutions, manages the momentum, closes the sale, and implements the product or service for the customer. While sales processes vary widely even within a single sales organization it’s important to define the optimal or preferred sales process as a foundational point for the organization to manage and optimize performance.

Sales deployment maps the feet on the street and the level of sales resources needed for each of the sales roles by geographies, segments, or other forms of account assignment. Deployment is typically guided by a combination of sales capacity (available sales time and workload) to manage current accounts or sell to new accounts, sales role and customer alignments, and logistical factors like geography and travel patterns.

Enablement

Enablement, the final layer of the Revenue Roadmap, supports all of the upstream disciplines within Customer Coverage, Sales Strategy, and Insight. Enablement includes areas such as incentive compensation and quotas, which aligns sellers to the sales strategy. It includes recruiting and retention, which define the current inventory of talent and determine how the organization is going to attract and retain the right talent for the long term.  Training and development builds the capabilities of the organization for people currently in their jobs and in junior roles that will progress into key sales roles. Tools and technology provide leverage by enhancing the effectiveness of gaining insight and implementing the organization’s decisions around sales strategy, customer coverage, and enablement.

 

Please review our new book, What Your CEO Needs to Know About Sales Compensation, and let us know what you think! To learn more, visit us at SalesGlobe.

Your Revenue Roadmap: Driving Your Sales Strategy with Compensation

Revenue RoadmapOn a chilly morning in Sacramento, I sat perched on a vinyl bench seat, warily eyeing my rolling workplace for the day: an 18-wheeler, windows fogged from the cold, vibrating slightly as its engine idled. My tour guide, Cliff, was a driver sales rep for a major brewing company. Cliff climbed into the cab, slid over to the driver’s seat, and we pulled away from the distributor’s warehouse towards a 10-hour day of sales calls to convenience stores, supermarkets, bars, and restaurants.

As we drove, we talked about how Cliff sold beer. He had been with the company for a number of years and was very successful, but he explained that his role had changed. “Two years ago, I was selling cases of beer to store owners. Now, I’m trying to make the beer they already have move faster. I check the signs, inspect the coolers, and try to get our beer in the best position.” In addition to being a driver sales rep, Cliff had become a bit of a marketer, too, since the company had changed his objectives a short time ago.

In the parking lot of a convenience store in a gritty urban neighborhood, Cliff dragged down a hand truck and I followed him to the back of the store and into a huge cooler which held cases upon cases of light beer, regular beer, and premium beer in 12-ounce, 16-ounce, and quart containers. Cliff looked through the stacks, pulled the expired boxes, and loaded them into the truck. He then lugged beer from the truck and packed it into the cooler. As he did this he talked to the convenience store owner about what was selling and what was not. Then he detailed the cooler display at the front of the store, making sure the facings of cans and bottles were aligned and that the packaging and tags for the week’s specials were clearly displayed.

The brewery Cliff worked for had changed its sales strategy recently. The old approach was to sell as many cases of beer as possible, as often as possible, to as many retailers and restaurants as possible. Cliff and the other driver sales reps were paid cents per case commission to load more cases into the cooler, rotate the stock, and pull out old beer.

Eventually, the brewing company realized that pushing more bottles and cans into the backroom of a retailer wasn’t necessarily selling more beer to the customer. With competition at the point of sale increasing over the years, sales out was less driven by stocking the cooler and more driven by effective marketing. Strategically, what was important to the brewing company was selling beer to the end consumer. The company learned that the consumption of beer was driven by TV, radio, and social media advertising. Point of sale advertising, they discovered, was another driving force.

For years the company had missed the opportunity to mobilize the driver reps and had motivated them toward the wrong goal. It had mistakenly promoted a transactional model of selling into the backroom. Finally they realized what actually sold beer – product placement, use of signs and displays, and matching price points with competitors. But the question remained: how did that translate to the sales organization? How could this strategy convert to incentives meaningful to the driver sales reps?

The quest for that answer found me undercover in a convenience store cooler, wearing a starched uniform with “Mark” neatly scripted above my left shirt pocket. We worked with the company to determine how to motivate the sales organization with performance indicators that could ultimately steer consumer preference. The company moved their sales compensation plan off of a purely volume-based plan and connected it to the metrics and activities that drove beer consumption. They developed performance measures that were focused on merchandising such as the number of facings, the position of the product closest to the cooler handle, the placement of signage in the retailer, the positioning of large displays, and competitive matching. If their competitor’s malt liquor was in 32-ounce bottles, they made sure their 32-ounce bottles of malt liquor were positioned right next to them, hopefully with a larger number of facings.

By understanding what influenced the purchase of beer and connecting it to something that was important to the driver sales rep, the company was able to change the behaviors of the reps and get them to sell more beer. Now, Cliff talked to the store owner not only about how many cases of beer he wanted and yesterday’s baseball scores, but also how the beer was selling and ideas he had about improving the marketing of certain products. He talked about the positioning of the product and displays, and he had statistics on how much that could increase the volume. The store owner listened because he knew Cliff’s advice was in his best interest.

Because Cliff’s compensation changed, his conversations changed. Because his conversations changed, the results changed. This retailer had struggled with the sale of premium beer brands in this particular market, but had seen a dramatic improvement in those sales over the past 24 months because of Cliff’s marketing.

The company and Cliff had learned an important lesson about translating the new sales strategy to the front line. The customer learned an important lesson about how to improve the results for his business, and together the company and the customer saw significant improvement in results, demonstrating the power of sales compensation and its connection to the sales strategy.

Aligning to the Strategy

One of the first things our firm does when we look at sales compensation is understand the sales strategy. We ask: How should the priorities of the business be represented in the sales compensation plan?

One of the ironies of sales compensation is that while it’s a tactical program, it can churn up issues that are actually bigger sales effectiveness misalignments. For example, Cliff’s sales compensation plan paid him for generating pure sales volume, an activity that was out of alignment with the company’s strategy of positioning product competitively and playing an advisor role to help the retailer grow its business.  A transactional plan like this would ultimately cause a breakdown in the company’s ability to achieve its goals. Sales executives have to be able to distinguish between issues that are sales compensation related and those that are indicators of bigger strategic challenges. They have to know when they have a sales process issue that needs to be fixed.

Mike Kelly, former CEO and president of The Weather Channel Companies, began his career years ago at Fortune magazine. There, Kelly worked directly with the business customer – sometimes the CEO of the company – who would have a personal preference for a business magazine, whether it was Fortune or Forbes or Business Week. Because the decision maker was at a senior level in the organization, it was important to understand the corporate strategy. When Kelly took over the sales organization of a new magazine, Entertainment Weekly, he took that customer orientation with him.

Traditionally, a magazine would research target companies and try to prove to clients and agencies that their audience was the right audience, as opposed to trying to connect their customers and advertisers to the subject matter. But Kelly implemented a customized, consultative approach, connecting advertisers to entertainment marketing. Unfortunately, Kelly explains, “We over-customized it, and the organization had a hard time making money.”

Entertainment Weekly was scheduled to be profitable after two years, but by year five it was still losing money and Kelly was feeling some pressure. “We would always point to our growth. Our circulation growth was great, our revenue growth was great, and everybody assumed, ‘Okay, at some point or another we’re going to get to profitability.’”

Kelly enrolled himself in an executive education class at Columbia University where he met Professor Selden, who talked about an idea called customer segmentation. He told his class the best companies understand not only who their customer is but also what their customer’s needs are. They group their customers based on needs as opposed to what they want to sell them. By segmenting his customers Kelly could understand the profitability of each customer and each customer segment. Then he could align his resources against those customer segments that were most profitable.

“It was revolutionary for me,” says Kelly. “No one – and certainly no one in the magazine industry – thought that way. All revenue was good revenue. And we typically thought our biggest customers, our highest volume customers, were the most profitable customers.”

So Kelly took this idea back to Entertainment Weekly, and his team analyzed the profitability of all of the advertisers and all of their segments. They figured out that cable advertising was starting to explode. Networks wouldn’t let cable channels advertise on television because they thought they would steal viewers. Cable had to buy print advertising; it was the biggest, broadest reach they could get. Entertainment Weekly had a smattering of cable channel advertisers, but it hadn’t been a big focus. Kelly and his team had concentrated on what everybody else was concentrating on – automotive companies and health and beauty companies. They were big advertisers that had a lot of appeal but were price sensitive. Kelly, however, realized that the cable television advertisers were actually their most profitable advertisers because they paid full price; they were time sensitive – they had to be in certain issues in the magazine because the show was on a certain night – all the factors that compelled them to pay a premium.

Kelly completely changed how his organization thought about who their customer was, who their most profitable customers were, and how they should go after their customers. He realigned the sales force, putting more people on the most profitable categories with strong growth expectations and sales incentives and fewer resources against the customers for whom it was really just a price buy.

“We were supposed to lose money that year,” Kelly says. “We made money. And then we went on to have 30 percent CAGR [compound annual growth rate] for the next five years.

“I learned that sales is sales. But there are principles of finance that if you apply them to sales, including incentive plans, you can accelerate what you do. I’ve brought that to every other job I’ve had. We really try to understand who the customer is and what our value proposition is to that customer. Then we segment those customers so we understand who the most profitable ones are and who they aren’t. We put our resources behind that profit.

“If your compensation plan doesn’t align with the strategy and the segments you want to target, then you’re going to be working at cross purposes. It’s hard work to get an organization, any organization, to start to think differently. And in most companies, sales is product-focused or platform-focused. They’re going to go sell their product wherever they can. When a company becomes more customer focused, all of a sudden it starts to define the product mix based on what the customer needs are.”  The sales compensation program can either support that customer focus, run counter to that focus, or create confusion. In Kelly’s case, the priorities of the sales strategy were well-represented in the sales compensation plan, and it drove the desired behavior.

The Four Layers of the Revenue Roadmap: Connecting Your Sales Strategy and Compensation

When thinking about sales strategy and sales compensation, it’s critical to have a framework. “The comp plan is the caboose, not the engine,” says Doug Holland, director of human resources and compensation for Manpower Group North America, a global workforce solutions company. “Compensation should never be driving the strategy. The strategy drives the compensation. It’s incredible, especially in times of stress, how that message can kind of get lost.  Comp issues are often symptoms of bigger problems, and it’s the easiest, most tangible thing to look at. The challenge is, do we have the right job designs? Do we have the right people? Those are harder conversations. That’s often the struggle with comp plans.”

We developed the Revenue Roadmap from our decades of work with hundreds of high performing sales organizations. The Revenue Roadmap identifies four major layers, or competency areas, and 16 related disciplines that must connect for the organization to grow profitably.

To learn more about What Your CEO Needs to Know About Sales Compensation, visit the book’s website, or purchase a copy on Amazon or Barnes and Noble. To learn more about SalesGlobe, please visit us at www.SalesGlobe.com.

What Your CEO Needs to Know About Sales Comp

Our new book is out! Read an excerpt below and let us know what you think!

Book Cover 3The office lights flicker on at 7:00 Monday morning. The early risers arrive and the staff trickles in. The CEO, vice president of sales, CMO, and vice president of human resources sip their first cups of coffee, bleary-eyed from Sunday evening’s conference calls. The office chatter starts. In an hour the phones will begin to ring. A few miles away, manufacturing has been busy at the line for a couple of hours by now.

Despite the bustling activity, it will all come to a halt if the next sale isn’t made. “Sales” is the top line on nearly every income statement. Without it, the funding runs out, the stock doesn’t trade, the lights no longer burn, and the office chatter falls silent.

At the root of sales is a team of tenacious souls squeezed in middle seats without upgrades, walking the hallways of major corporations, making outbound calls to semi-qualified prospects, pacing customer reception areas waiting for a chance to have that critical conversation about the customer’s needs, and generally wearing out the soles of their Cole Haans. Each year on average, they experience eight to ten times more rejection than acceptance from their prospective customers. Yet they persevere – most with continued optimism – in pursuit of the close, the add-on sale, the contract renewal. Most of them are driven by a quest for three things: personal accomplishment, recognition, and compensation … sales compensation … commission … bonus … the deal that makes their year and the company’s year.

The sales compensation plan is one of the most significant drivers of performance in the sales organization and represents one of the single largest expenses a company will incur, commonly tens or hundreds of millions of dollars. It’s a thin but vital long distance line that keeps the daily connection between corporate growth and the rep on the street. It guides and motivates the actions of the sales organization more than any other single factor. It trumps leadership messages, sales strategies, sales management, and sales training. If there is a hard wire between the customer’s office and the corner office, sales compensation is it.

But if the plan’s message isn’t clear or to their liking, sales reps will interpret the plan in their own financial interest. As a corporate leader, you’ll get what you measure and what you pay for – and it may not always be what you expect.

While its impact can be direct, it’s a fine blend of art and science that has long been a point of conflict within companies. Everyone has an opinion about sales compensation and everyone is an expert, yet few agree on the best approach to drive performance toward the company’s objectives. Sales, sales operations, human resources, and finance regularly engage in battles over questions like:

  • Does the plan represent our business objectives?
  • Are our highest paid sales people actually our top performers?
  • Is the plan too expensive?
  • Can we better motivate our organization to pursue the sales strategy?
  • How can we promote more of a performance-oriented sales culture?
  • Can we make the plan simpler to understand?
  • Can we make the plan easier to administer?
  • Are sales quotas penalizing our best performers?
  • How can we set quotas that better represent the sales potential in our markets?

Too often these battles lead to sales compensation programs that are compromises between parties, ultimately leading to underperformance in the business. Above the fray, senior executives look on, often asking only the most general questions. Many of these senior executives, concerned about the next quarter and the remainder of the year, miss opportunities to use sales compensation as tool to drive growth.

What Your CEO Needs to Know About Sales Compensation is not a technical guide for designing a sales compensation plan. This is a book that tells the stories of how senior leaders in a company can understand the connection between their goals and sales performance to leverage sales compensation as a driver of real growth in their organizations. We’ll focus on the top challenges in companies today and offer logical leadership approaches for dealing with each of these issues.

What Your CEO Needs to Know About Sales Compensation, written by Mark Donnolo, managing partner of SalesGlobe, is available now on Amazon.com.

Time for Coaching Sales

Coaching is a critical role for sales managers. But consider your own organization: how many managers spend time each week coaching and developing their teams?

For the rest of us, it’s a struggle. Sales managers just don’t put the necessary time into coaching. Sometimes – often – it’s because they don’t have the time available or they really don’t understand how to coach.

If you’re thinking, “Each of our sales managers spends about 30% to 40% of their time coaching,” then congratulations. You are in a small but decidedly elite group.

But it’s not that sales managers don’t want to. In a recent survey conducted by SalesGlobe, 84% of companies perceive coaching as either “very important” or “one of the most important factors of sales success” for their organizations. And the reps are actually really interested in doing the work. Surprisingly, although sales people often take a cynical view of training, most are open-minded when it comes to coaching and development that contributes to their success. In fact, 75% of sales leaders see their organizations as receptive to coaching.

Balancing out the role between sales and sales management is crucial to allow bandwidth for coaching time, and setting priorities for sales managers is the first step.

Leadership must make the mandate for coaching clear. If coaching is not a priority in the organization, it will only be conducted by those who are interested. Many of the top performing sales organizations around the world require that their managers spend target amounts of time weekly on coaching. To ingrain the process in the organization some companies will go as far as requiring managers to post their coaching time on a public calendar, making it visible to the organization. Like most business priorities, coaching has to be viewed as essential by leadership in order for managers to make it a priority in their own jobs.

 

To learn how to make coaching a priority for your sales team in 2013, email Mark at MDonnolo@SalesGlobe.com, or visit us at SalesGlobe.

2013: Questions for a Lucky Year

Whether 2012 was a banner year for your sales organization or one preferably forgotten, it’s winding down. It’s time to start looking forward to 2013, that oh-so lucky sounding year.

But fear not. Even the most superstitious among us can make 2013 absolutely providential with a little planning. High performing sales organizations operate around four key areas: Sales Insight, Sales Strategy, Sales Coverage, and Sales Enablement. Together, this knowledge helps to create a clear strategy that will make sense on the front line, and drive productivity all year.

Sales Insight comes first, because it’s essential to really understand what’s happening in your market.  Without insight into your industry and competitors, it’s next to impossible to plan an effective strategy.

Take the time to consider these key Sales Insight questions before diving into sales strategy or coverage planning for 2013:

  1. First and foremost, what’s happening in our macro market? What’s happening in our economy overall?
  2. What about your market? Was 2012 really a banner year for your industry or a dismal one? Why?
  3. How did your competitors perform this year? Do you know what led to their successes or failures?
  4. What do your customers say about your sales organization? Did you meet, exceed, or fall short of their expectations this year? Do you truly understand the needs of your customers?
  5. Where did the revenue for your company come from this year? Did you retain current customers? Did you sell new products or services to those current customers? What percentage of revenue came from new customers?
  6. What were the major strengths and weaknesses of your sales organization in 2012?

What other ways can you gain insight that will help your planning, and make 2013 the “luckiest” year ever?

To learn more, visit us at SalesGlobe.

To Cap or Not To Cap?

Now that the election is over and all those spirited Republican vs. Democrat office debates will start to cool down (maybe), here’s a fun idea: why not kick up some dust with a new fight? Should the sales compensation plan have a cap, or not?

This is a surefire way for some lively conversation.

A cap is an upper limit on incentive earnings. The benefits of caps include mitigating risk for the company. We’ve heard stories, and you probably have too, of a sales team or single rep hitting a mega-deal and raking in a seven-figure commission check. These stories scare the heck out of finance.

These stories also motivate the hell out of the sales organization, which brings us to the downside of caps: they can be very demoralizing. Even if the cap is way out in the stratosphere of potential earnings, its existence is felt. The sales organization knows there is a limit to their earnings, and they don’t like it. For the highest performing reps, they might ultimately look for a role in another company, one that doesn’t cap incentives.

While we don’t recommend caps, there are some legitimate reasons a company may employ them. For example, caps protect you against unexpected payouts resulting from mega-deals or bluebirds beyond the rep’s control, poorly set quotas, unreliable financial modeling, or production-constrained environments where demand may outpace supply or the company’s ability to maintain quality levels.

On the other hand, uncapping the plan requires good historic data and financial modeling. An uncapped plan must also be consistent with the sales culture of the organization, especially if reps may earn more than their managers or senior sales leaders, in some cases.

Caps are less about the math and more about the people and behaviors.

What’s your position in this spirited debate?

To learn more, please visit us at SalesGlobe.

Bus Accidents & Sales Comp: Thresholds

What do bus accidents and thresholds have in common? Well, a (pretend) bus accident is an important way to think about thresholds (we don’t actually want or advocate anyone getting hurt).

Within sales compensation, a threshold is the performance level at which the plan begins to pay incentive. For example, if a rep’s quota is to sell $1,000,000 in revenue annually, she might have a threshold of $400,000, or 40 percent of quota. If she sells less than that, she’ll only earn her base salary, without any incentive compensation. Once she sells that $400,000 – the threshold point – then her incentives kick in. She can earn these incentives up to her target incentive, which she would earn once she’d sold the full $1,000,000 of her quota. And of course, if she sells beyond $1,000,000, then she’s eligible for upside (the really good stuff).

But, are thresholds fair? To say a rep cannot earn incentive pay until she sells a certain amount could sound like she’s selling for nothing. But don’t forget, the company already pays a base salary for the core job responsibilities and minimal performance. So some companies believe paying incentive on top of that would be double-paying.  Thresholds also set a clear minimum performance expectation: performing below a certain percent of quota (or a certain dollar level) is unacceptable, and may ultimately find the rep looking for a new job. Withholding incentive is the first painful step but send a clear message that that level of performance is unacceptable in this company.

So for what types of jobs are thresholds appropriate? That decision is largely based on the job’s sales strategy and type of sale. This is where the (pretend) bus accident comes into play. Ask the question: “If at the beginning of the year the rep was hit by a bus, what percent of his annual quota would come in without him there?” If the answer is, “All or most of it,” because a large portion of his revenue is recurring, then you might want to consider a threshold for that role.

If your answer to the (pretend) bus accident question is, “None of it,” because the rep is focused on new customer selling or working with current customers that have little recurring revenue, then each new sale may simply not exist without the rep. If that rep has a high degree of influence for each sale, then plan should have little or no threshold.

The (pretend) bus accident question is a great tool to cut through the arguments about thresholds with some straight logic and cross-industry practices. The actual level of the threshold, in terms of percent of quota, is usually set either mathematically or through management expertise. Using the mathematical approach, the organization should look at quota attainment historically at the 10th percentile, and use that as an estimate of a reasonable threshold. The management expertise approach answers the question, “Below what point would it simply not be acceptable to pay incentives?” Most executives will have an immediate answer to this question.

Once the threshold point is set, beware of changing it from year to year just because the performance distributions change. Expect variability and keep a steady hand over time unless the market, nature of the sale, or job role change significantly.

How do you determine whether or not to set thresholds? Do you think they’re fair?

To learn more, visit us at SalesGlobe.

 

Making More than the Boss: Sales Incentive Pay

How much cash should a top sales person potentially earn in a given year? More than her manager? More than the head of sales? More than the CEO? The answer to this question is indicative of an organization’s pay philosophy and its ability to attract and retain the best talent in the industry. We recently surveyed C-level executives in top companies around the country, and nearly all agreed that a top sales person could earn more cash in a year than the head of sales. While that high earning rep may be a different person each year, and that earnings level may not be attained every year, the event would not be unheard of in the organization. In fact, many C-level executives said that these events would be motivational to the organization.

 

As for earning more than the CEO, many C-level executives philosophically agreed that this wouldn’t be an issue given the right level of sales production, but it’s not usually realistic. Nevertheless, “sky’s the limit” potential is inspiring to reps who see no limits to their capabilities.

 

Organizations that know how to use the Reverse Robin Hood Principle typically set the pace with the leaders in their industries. One director of compensation told us, their top performer made $4.5 million in one year. “We had another person who made $2 million, another who made $2.5 million and then we had about 10 to 15 people that made over $1 million,” he said. “That’s probably eight to 10 times their target. So, there’s no question; we have a very aggressive comp plan that pays well. The incentive plan is a motivator. That’s the bottom line.”

 

How much can top performers earn at your company? More than the head of sales? More than the CEO?

 

To learn more, visit us at SalesGlobe.

Sales Comp & Merry Men in Tights

Let’s just pick up where we left off last week: the case for upside potential. You want to reward those top performers, not just pay them. You want to incent them to repeat their performance next year. And you want to engender loyalty to your company by ensuring they feel like the critical contributors that they are, through recognition and financial compensation.

 

But finance will ask, “Where does all this money for upside come from?”

 

Our old friend Robin Hood has inspired the answer. While that merry fellow worked (robbed) to promote less division between the high end and the low end of the village, we suggest that when it comes to sales compensation, the reverse should be true.

The Reverse Robin Hood Principle states that an organization doesn’t overpay the low performers but instead significantly rewards the high performers. Instead of paying low performers below threshold, the organization uses those funds to reward the top. Perhaps surprisingly, this can be a big challenge. Some companies simply are uncomfortable with a huge disparity among members of the sales organization. The Reverse Robin Hood could upset the company culture, or the way it’s always been done in the past.

But, if the outcome is rewarding, celebrating, and retaining the top performers, perhaps at the expense of the bottom 10 percent, perhaps a meritocracy isn’t so bad, after all.

What are the potential risks and rewards you see with the Reverse Robin Hood?

To learn more, visit us at www.SalesGlobe.com.

Sales Comp & Big Money

Let’s look at one of the most exciting components of the sales compensation plan. (No your eyes have not failed you. I said “exciting” and “sales compensation” in the same sentence.) It’s the part that can sustain or destroy the sales culture, and it lets top performers know whether (or not) they can earn big money. Upside potential is the incentive pay, above target incentive, that a sales person can earn if she exceeds quota and reaches the higher levels of performance in the sales organization.

 

Let’s say, for example, a rep had a total target compensation set for $100,000, and had a 50/50 pay mix (so he would earn $50,000 in base salary, and assuming he met his quota, he would earn an additional $50,000 in incentive pay). But then, this rep just kept going. He kept selling. He went above his quota. His company knew he was capable of this extra effort and had a plan in place to reward him. It’s called upside. (As a side note: a top performer is usually a person at the 90th percentile of performance or above in the company, and the upside potential earnings is usually set as a multiple of pay at risk.)

 
For example, a plan may have the potential to pay 200 percent of target incentive to a 90th percentile performer. So, in our example, the rep’s target incentive is $50,000, so the plan would have upside potential of an additional $50,000 (paying 200% of target incentive to the 90th percentile performer). So now, our rep earns his $50,000 base salary for showing up at work and playing nicely; he earns another $50,000 for selling to his quota; and now he earns an additional $50,000 for being a top performer. Some plans pay 300% of target incentive it’s up to the company to decide, but the amount of upside potential is usually determined by the competitiveness of the market to attract and retain top performers and the margins of the business to sustain a certain level of pay for top performance.

 
To me, this is what makes upside potential so interesting: Without the upside potential, the incentive compensation plan favors the company, because it only pays up to quota. The risk is all assumed by the rep; if she doesn’t make her quota, she won’t earn her total target compensation. But if she knocks her quota out of the park, she’s not rewarded much more. Upside potential balances out the risk and reward equation for the rep, making it worthwhile for the rep to put that pay at risk rather than just take a flat salary.

 

Believe it or not, some companies have very little to offer reps above quota. There’s minimal incentive to reach beyond their goals. In the case of our earlier example, the employee seeks a job with a company willing to pay her upside.

 
Let me know if you’ve seen examples of upside well used — or a company that doesn’t believe in it.

 

 

To learn more, please visit SalesGlobe.

What’s So Great About Pay Mix?

According to the founder and CEO of a large, public communication company, incentives are everything. “The vast majority of people in companies work for two things: ego and money,” he has said. “What are we incented to do? How are we incented to behave? Incentives drive trained behavior. Period. We don’t spend enough time on getting it right in our company, and I guarantee not enough companies do. As a CEO, I have to hear my CFO and the finance department say, ‘Well you can’t do that because we can’t afford it. We can’t have that much incentive pay.’ That’s absolutely ludicrous. It’s not a question of affordability; it’s a question of sustainability.”

It’s a great point. The sales organization drives the bottom line, whether finance likes it or not (with respect to finance organizations everywhere). And sales people are motivated by their potential earnings. Would a great sales rep work just as hard and bring in as many deals if he were paid a flat salary? Yes, many of them would, but he or she would probably be looking for a new job at the same time.

So how can you responsibly incent, and pay, for the best sales teams out there? Through the correct pay mix and upside (We’ll talk about upside next week).

Pay mix, which refers to the portion of base salary and target incentive an individual in a job earns at quota, is usually the single most influential driver of behavior for a salesperson and the largest financial decision for the company. It establishes the company’s commitment to fixed (base salary) and variable (incentive pay) costs while setting the stage for upside payouts for high performers. A job may have a sizeable portion of pay or a modest portion of pay in target incentive, which reflects the desired role and, if designed correctly, will motivate the right types of behaviors.

Your company may have three job roles for example, new customer acquisition, current account penetration, and current account management which may earn the same amount of target total compensation for at-quota performance (let’s say $100,000), but they may earn that pay in different proportions. Those proportions of salary and incentive are affected by factors that include the sales role and sales process. But each type of job should have a pay mix that motivates the right type of behaviors for that job.

A new account acquisition role will usually have a relatively aggressive pay mix, say 50 percent salary and 50 percent target incentive. While their DNA will naturally drive the rep, significant pay at risk supports the types of hunting behaviors we want to encourage with this role. A more complex sales process will sometimes lower the percentage of pay at risk to enable the rep to work through the intricacies and duration of the process as well as multiple buying points in the case of global accounts or government accounts. As new customer acquisition is usually the most expensive type of sale, an aggressive pay mix also puts a large portion of pay in variable cost rather than fixed cost which lessens risk for the organization. However, with risk comes potential reward for the rep. Pay mix carries with it a corresponding amount of upside potential for top performers, usually in proportion to the pay at risk. Total incentive earnings for a top performer may be 200 percent, 300 percent, or more as a percentage of target incentive. If a person in this role earned $100,000 in a year, he would earn $50,000 in base salary and $50,000 in incentive pay. (We’ll discuss upside potential and differentiating top performers later.)

A current account penetration role is busy building relationships and may have a moderate pay mix with 70 percent of pay in salary and 30 percent in target incentive. We want to motivate performance but not typically with the level of risk and corresponding aggressiveness as the new account acquisition role. To maintain a balanced customer solution orientation and achievement orientation, most organizations will offer a pay mix somewhere between 70/30 and 80/20. If a person in this role earned $100,000 in a year, she would earn $70,000 in base salary and $30,000 in incentive pay. This role also receives upside potential relative to the pay she puts at risk.  

A sales role concentrating on customer service and revenue retention will usually have a relatively shallow pay mix, for example 90 percent salary and 10 percent target incentive. This minimal risk allows him to have the patience to work through customer challenges and strengthen relationships without the stress of trying to close the next sale. A role of this type with a more complex sales process will usually have a shallower mix than someone with a more transactional sales process, as the complexity will add to the time and patience required to work through creating the right customer experience. If we use a pay mix with too much incentive relative to base, we run the risk of creating a very anxious rep concerned more about attaining a sales result quickly than serving the customer correctly. If a person in this role earned $100,000 in a year, he would earn $90,000 in base salary and $10,000 in incentive pay.

More about incentive pay and upside next week.

To learn more, visit SalesGlobe.

Doing Away With Quotas

Ah, quotas. Can’t make people like them, can’t achieve goals without them. Or can you?

We recently spoke to a sales executive who told this story:

“Several years ago our sales force for one of our business lines was cut from 25 reps to 15, but the quota went up. The sales leader was bold, and he had some bold leadership traits. He walked in to the meeting and said, ‘I’m doing away with quotas. I don’t know what the right number is. I know you guys are the best of the best and it’s a big market. Now, my number, is $100 million, and there are 15 of you. So you can all go figure it out if you want. But there are no quotas and I’m not measuring to a quota. I want to see what we’re capable of as a team.’

‘And then he said, ‘Give me a list of what’s getting in the way of your success.’ The reps came back and said, ‘Titles,’ so he changed all their titles. And guess what happened that year?  They sold about $127 million, best number ever, highest per person, and we never set a quota for anybody. The organization had a target and there were a certain number of people, but there were no incentives at the target. It was paid off of what you drove home for the business. To some extent he set the people free. It was a powerful enablement, to say to your people, ‘You’re the best of the best, and I just don’t know how good you can be.’ He’s a motivator and a very good team builder, and kind of an impassioned leader. I don’t think everybody can get away with that.”

Could your sales organization get away with it?

 

To learn more, visit SalesGlobe.

For the C-Level

Late last fall, a group of senior sales leaders of a high-tech hardware company found themselves stuck. Their problems began 10 months earlier when the sales leaders embarked on their annual sales compensation review and design cycle. They went through the rounds of interviews and surveys with the sales organization, worked through alternatives for the plan, and arrived at a final set of compensation designs in early winter. The CEO, Edward, heard updates throughout the design phase and deferred to the executive steering committee. It was a long process that year because the company had shifted its focus slightly to include some additional software that complemented its hardware products. The sales leaders worked through the complexities with the executive steering committee and kept the sales compensation program relatively simple. The CEO continued to receive updates and defer to the executive steering committee.

As November passed, the sales leaders met with the executive steering committee for final review and approval of the new sales compensation program. The plan had been financially modeled for any imaginable situation, but it still had to be communicated to sales directors, sales managers, and opinion leaders in the field. All that remained was the formality of getting the CEO’s “nod.”

“What do they say about the best laid plans,” one of the SVPs of sales asked rhetorically. “We had the presentation down. It was very simple: a few pages, big diagrams, the strategy, where we are now, and what we’re going to change. Edward had already seen it all, in pieces, as we designed it. But we got a few pages into the presentation, and he started asking questions that sounded like he hadn’t seen the plans before.”

The other SVP chimed in. “The first question was about our planned mix of software and services by segment, and why we didn’t have an incentive measuring that for each rep. We talked about that a number of times with the executive steering committee months earlier and agreed to keep it at the sales management level and have them manage it during year one until we had some reliable numbers to set goals. Then Ed started digging into the financial modeling and challenging us about why the plan would pay more than the targeted cost of sales if we hit our company goal on average but had a lot of high performers. The team had agreed on the above-quota accelerators, and that’s what happens with accelerators. There were a bunch of other questions after that but I started to get a little irritated, because it was clear that Ed just wasn’t connected. We worked hard on keeping him informed, but when he finally locked in, we were at the end of the game. We ran this program by the field, we worked through all the details, and now it’s like we’re starting back in September and it’s practically December. So, we need to make some adjustments pretty quickly to keep the wheels on this thing for January.”

C-level executives get involved in various ways during the sales compensation process. Too much involvement too late can wreak havoc on the labor-intensive and time-consuming design process. It can also undermine the heavy lifting already done by the design team and the confidence the C-level has placed in the team. On the other hand, zero C-level involvement isn’t the right strategy, either. While the compensation design team may be brilliant, a brilliant sales compensation plan must line up with the vision for company-wide growth, which most often must come directly from the corner office.

We recently looked at C-level participation across a range of companies and found in 82% of companies high-value involvement peaks at the start of the process to provide strategic direction and 55% provide guidance on the priorities of the compensation plan.

According to our survey, 23 percent of C-levels participate periodically in design team meetings. However, most C-levels and their teams give caution about getting too involved in the details. It pulls the C-level out of his area of strength and sometimes turns him into the bull in the China shop. About 36 percent of C-levels get involved in the details occasionally, but very few (about five percent) get involved in the details frequently. For the inquisitive, high-IQ CEO or president, it takes a certain level of self-control, and team reinforcement to prevent this from happening.

How can you determine the right involvement points for a C-level executive in your sales compensation design process? How do you ensure his or her engagement?

To learn more, visit SalesGlobe, email mark.donnolo@salesglobe.com, or read What Your CEO Needs to Know About Sales Compensation.

2012 Staffing Industry Sales Force Compensation Survey

 

We are pleased to announce the 2012 Staffing Industry Sales Force Compensation Survey, the exclusive benchmark of pay practices for the staffing industry, has launched! We invite you to participate.

This survey is a landmark study of sales compensation and job roles and is the only compensation benchmark exclusively for staffing firms. Last year 60 large, mid and small staffing firms participated in the survey, including Robert Half International, Randstad, and Adecco.

Please use the link below to access the survey:

http://www.surveymonkey.com/s/2012SalesCompJobsSurvey

 Only survey participants will be able to see the final results. Staffing firms can use this report to benchmark their sales organizations.  The 2012 Staffing Industry Sales Force Compensation Survey covers major sales and recruiting roles, pay practices, and performance data for the industry’s leading companies. Topics include:

  • Key job roles for new customer acquisition, account management, and recruiting
  • Hybrid sales, operations, and branch management roles
  • Target and actual compensation levels
  • Pay ranges
  • Incentive levels and pay mix
  • Upside earning potential for high performers
  • Performance metrics and priorities
  • Commission and quota mechanics practices
  • Quota levels and practices
  • Productivity levels
  • Plan administration and challenges

Participants and Report

As a thank you for your participation, we will provide you with a complimentary copy of the Participants’ Survey Report for your use. This detailed report will include statistics on roles, pay levels, and performance levels by job type. All statistics are reported at a multiple company level and preserve the confidentiality of participating companies. The report also includes information on key challenges and trends around performance, compensation and year over year analysis.

The data you will need to complete this survey includes:

  • Basic information on company size and focus areas
  • Information on the roles of each major sales management and recruiting job. NOTE: Participants will only provide date for the job relevant to their company.
  • Most recent year’s compensation data for each role, which should include target and actual base salaries and incentives (highs, lows, midpoints, and averages for the people in each job role)
  • Information on the types of performance measures (e.g., revenue, gross profit, product mix) used in each compensation plan
  • Information on the types of mechanics (e.g., commission, bonus) used in each compensation plan
  • Information on approximate quota size for each job
  • Descriptions of any rewards and recognition programs used by your company
  • Description of how you administer the compensation plan    

 If you have your sales job and compensation data available, this survey should take about 60 to 90 minutes to complete. You may also save your work on the survey by selecting “save and continue,” and then finish the survey at a later time on the same computer.

I am happy to provide an Excel spreadsheet that matches the survey questions to help you gather and track the information needed to complete the survey. Please email me at cparker@salesglobe.com, or Eileen Gold at egold@salesglobe.com.

Please contact me at cparker@salesglobe.com if you have any questions or concerns regarding the 2012 Staffing Industry Sales Force Compensation Survey benchmark study.

Thank you for your participation!

 

 

 

CEOs and Incentive Compensation – Partners or Strangers?

Do CEOs become involved in the design of incentive compensation programs, or just pop their head into a meeting and ask, “Will this cost me more or less than it did last year?” Are there advantages to either approach?

Somewhat surprisingly, in a lot of large companies we see CEOs or presidents that are very involved in the compensation design process.  It doesn’t mean that they’re getting down to the details of the process – modeling numbers and trying to be creative about SPIFFs.  What it means is that they are giving strategic direction and staying informed throughout the process. 

We recently worked with a large telecom company whose CEO is really involved in the sales compensation design process – for thousands of employees and a lot of different job types. It’s an important message for the CEO to communicate, and it’s a positive reinforcement to the sales and sales operations organizations that there is indeed a connection between the c-suite and the front line: incentive compensation.

In our experience, a C-level executive generally asks questions about how the business priorities are represented in the compensation plan.  One key question is: are the problems associated with the comp plans really compensation issues or are they broader sales effectiveness issues? Sales compensation kind of has a magical quality. It’s a tactical program that churns up more strategic issues. For example, a problem that may first be blamed on a poorly designed sales compensation plan might really be the fault of vague and uncertain job roles.  Sales compensation demands specifics, and because of that it can quickly identify other issues – kind of like a circuit breaker that pops. 

So how do you get the C-level involved?  Some CEOs are naturally involved, some are not.  Often the CEOs who came up the organization through sales have more engagement. CEOs with a background in finance might be more interested in the cost rather than the potential to incent behavior.

It’s worth consideration. Several years ago we designed a new sales compensation program for a manufacturing company. Right before we were supposed to interview the CEO, the project leader, who was the head of sales, stopped us and said, “I’ve got to tell you that the CEO doesn’t know why we need to meet.”  I couldn’t believe that the leader of this organization really didn’t understand the importance of the program.  We had the meeting, and about half way through the CEO got it. Ever since he’s been very deeply involved. 

The CEO connection is critical for the sales organization, in terms of strategic involvement. Whether it comes naturally or has to be coerced, it’s a worthwhile partnership.

Please visit SalesGlobe for more information or email mark.donnolo@salesglobe.com. 

Communicating Change to a Sales Team

Perhaps the hardest aspect of business communications is the timing. You’re always behind the 8-ball. So much of communication is formally announcing what people already know thanks to the rumor mill and the water cooler.

 So there’s a natural pause. “Do I really need to announce to my sales team that we’re redesigning territories? They already know it.” But avoiding that formal announcement is a mistake: it’s a missed opportunity to frame the change in positive language and directly address the natural fears associated with change.

 Before you talk yourself out directly communicating to your sales team what to expect with their new sales comp plan or job roles, consider making time for an “assessment phase” to do the following:

1. Send a clear message from leadership making a compelling case for why change is necessary now.

2. Gather input from the people who will be most affected by the new sales comp plan or territory redesign (or other change) through formal or informal interviews and/or mini-surveys.

Whether rumors have begun flying about an expected change, or you’ve just noticed a few fearful glances around the office, beginning effective communication early will usually garner a greater percentage of buy-in from people who feel they’ve been heard.

 

To learn more, visit SalesGlobe or email mark.donnolo@salesglobe.com.

Part III: Aligning Comp with Sales Roles

This is the third installment of a blog series on Rapid Sales Comp Design. Read Part I here and Part II here.

MARK DONNOLO: I’d like to spend a few minutes on the aligning of the sales roles and some practical thoughts on that. We do a lot of work with companies that have multiple sales roles and multiple groups for the sales compensation plan. We recently worked with a company that had 57 sales roles. I’d say they probably represented the 50th or 60th percentile in terms of complexity – certainly I’ve seen them with more than this. But this company is a good example of an organization with unnecessary complexity and too many mechanics to measure the plan.

This company had 57 unique roles and unique definitions and alarmingly unique compensation plans. You look at a situation like this and you think, “Wow. How do we make some sense out of this? Are there really 57 roles? Do we really need 57 different compensation plans?”

Sales roles and compensation plans are like tree roots. Uncontrolled they’ll branch out and organically multiply. So we took these 57 roles and sorted them by looking at their strategies and the responsibilities around the sales process and markets. That group of 57 actually sorts out into about eight different job families.

For an organization trying to manage compensation plans in this range, they become unwieldy. Each of those 57 plans had multiple measures, more than three – in some cases five or six measures. It can become really a nightmare in terms of communication and administration. It also raises questions about whether it’s really supporting the business as best as it can. Simplifying to eight job families makes a big difference.

How do you get a handle on something like this from a comp design standpoint?

PANELIST 2: I really try to keep it simple when I’m dealing with the sales leadership and even the operations leadership. I ask, “What of this is core critical?” So if we agree on
the account manager structure, in principle we try to keep it straightforward and consistent across the globe. Of course, I can see here how this actually translates into the plans that we have to operate on. We’ve got multiple variations for different reasons and nuances that each person gets approved for the exception.

I think what I try to do is to keep it as close to the core that’s been approved.  Identify why we have a nuance. We’ve done some interesting things in the matrix that we use to line up the systems we need. I try to make it as straightforward and simple for our operations teams and sales leadership as possible. “Here is what we’re using; this is the core.” We try to keep it to a select group that can manage through that and understand how that translates when you’re talking about 300+ plans.

MARK DONNOLO: Wow, so 300. That’s quite a number to manage. Do you manage that to a smaller number?

PANELIST 2: We usually start off the year with 35 different core plans, from your top management plan down to your inside sales specialist or your technical role. The reasons we’ve got so many permeations – and I’m sure a lot of other people struggle with this same thing – how the information flows determines how we design our compensation system to make that core plan work.

It doesn’t originally start off as 300. I would say we have 35 really core plans that we have designed with our leadership and have rolled out globally, and then there are variations that happen over the year. This year we’re probably closer to 200. But that’s how it happens.

MARK DONNOLO: How do you sort those out? We tend to sort it into different sales strategies: new customer selling or current account management, for example. Or, are they covering a range of products or single products? Are they specialized? Are they focused on certain segments? Do they cover a certain piece of the sales process or the whole sales process? Do they have certain technical knowledge or even management responsibility? Are they selling sales managers?

We tend to group by dimensions like that. Do you use a process to sort down to the true core roles?

PANELIST 2: Yes. It’s pretty easy once you become familiar with it. It’s sorted by management role. Usually we define it as the general management of the field, channel management, and technical management.

We’ve really got this definition of a front line vs. non-front line role. Then you’ll see which ones are more of your generalist that will receive credit for all variations. Then you’ll get into your specialists roles. So I’d say over the last couple of years we’ve gotten to the point where it’s very intuitive as to what that role will receive and what their responsibilities are. The
number of variations is voluminous, and that’s where we get lots of questions. “Why do you have to have lots of nuances?” I won’t bore you with all of the reasons why. It’s pretty intuitive. We separate it out by responsibility and then all of the unique specialty type roles we try to keep clustered as a group so we can identify the product specialty or service specialty.

Read Part I here and Part II here.

To learn more visit SalesGlobe or email mark.donnolo@salesglobe.com. 

Part II: Sales Strategy Dimensions

This is the second of a three part series on Rapid Sales Comp Design. Read Part I here and Part III here.

 

When you go down to the next level, we get to the question about strategy. As we look at where the organization is going over the next year, the elements that may show up in the compensation plan tend to be the following:

 

  1. Customers. Determine the focus for certain markets or certain types of customers in terms of acquisition of new customers or penetration.
  2. Products. Determine which products or services are priorities for your organization.
  3. Channels. If you’re working in a multichannel environment, establish a balance between direct and indirect sales and how they work together.
  4. Financial. Clarify financial objectives, what you want to accomplish within the business and the financial parameters.
  5. Talent. There may be certain people objectives we want to accomplish in terms of certain types of talent, or retaining certain types of people or building out certain types of sales roles or parts of the business.

 

 

Those five elements – customers, products, channels, financial and talent – will tend to show up as big drivers to consider as part of the sales comp plan.

 This is the second of a three part series on Rapid Sales Comp Design. Read Part I here and Part III here.

To learn more, visit SalesGlobe or email mark.donnolo@salesglobe.com.

Rapid Sales Comp Part I: Setting Limits on Change

This is the first in a three-part series. Read Part II here and Part III here. 

SalesGlobe recently conducted a panel discussion with several experienced compensation executives to explore last minute sales compensation design. Mark Donnolo, managing partner of SalesGlobe, facilitated.  In case you’re scrambling to put together a sales comp plan, or maybe your plan is complete and you’re curious what the procrastinators have in store, here are a few of the highlights around Step One: Setting Limits on Change.

MARK DONNOLO: How do you look at change at your company, and what drives any shifts in the plan?

PANELIST 1: That’s a good question. For us, we try to keep the North Star really around what the strategy is for the business. Our fiscal year starts October 1, so the whole process starts in January after the end of our Q1 or calendar Q4 end. There’s a nine month planning cycle, so a lot of time is spent with the CEO and his executive staff to really understand where the company is going in the marketplace, our strategy, and which customer segments we want to be in. Are we rolling out solutions? How do we want those solutions to mix with our existing strategy? From that we start to build what the coverage model looks like and how we are going to deploy resources. The sales comp plan really is one of the last things we talk about, even though it’s one of the first things that everybody likes to jump to. “How am I going to pay people? We hope to roll out a new product and I want to pay them more for this.”

 We have done a nice job of coaching the leaders that sales compensation is really the caboose; it’s not the engine. While it tends to be the solve-it-all solution for everybody, it’s really not, right? We need to solve how to run the business and drive the business first, understand how we want to go to market, and then let the sales compensation plan structure really be the vehicle for executing on the strategy. That’s important for us.

 MARK DONNOLO: You’re getting a head start then. I think nine months ahead is insightful, especially for a lot of organizations that will pop up at the last minute and say, “Hey, we have to look at the sales compensation plan.” It’s been talked about during the year, but it hasn’t really been part of an evaluation or planning process.

 PANELIST 1: Yes. And I’m not going to lie to you, because it sounds like, “Oh wow, you start nine months ahead. Everything must be perfect and everyone is aligned.” But just like in every company, the executives change their minds a lot. For example, recently we were hosting a call with the international and U.S. divisions, and finance and operations were saying, “We’re three weeks away from the launch of the new plan and the end of the year. Here are the critical changes that we are aligned on. Is everybody prepared for communications? Are we ready to start rolling out quotas next month?”

And a lot of the sales leaders started questioning some of the decisions that we had aligned on in July. “Is this the right decision? Should we maybe change the mechanics of the plan? Should we go to this third measure vs. this measure we took out?”  And you’re sitting here thinking, “We’ve got three weeks left. It’s not like it’s a quarter to go.”

But I think the planning process is continual until you actually communicate it. Because you might have someone from the product house say, “I told you I wanted to pay this product differently.” And maybe you structured the plan to have a separate measure or a multiplier or something. But what we find is that it’s very difficult to corral the leaders and have them stick to something. So we are going to be tweaking things almost up to the last minute, which I guess is appropriate for this topic. But I think the overall structure – we’ve done a very good job of keeping that consistent from the decisions made a couple of months ago. Even though the mechanics might change slightly with three weeks left to go in the year.

MARK DONNOLO: I know one question that comes up is: where do you stop? How do you put an end to it? Someone said recently, “It’s as if our sales leaders have free reign to continue to change things all the way up until the last minute.” We really need to end it at a certain point and move ahead. Is there a way you’ve found to do that?

PANELIST 1: I think you’ve got to be positioned well in the organization. I think the sales compensation function has to be seen as a leadership role that has authority to push back. If it’s not, I think it’s going to be much more difficult. The sales leaders or the others will run wild.

If you’re set up in your organization to have that leadership role, it’s just a matter of saying, “Guys and gals, it’s T minus three weeks, these are the decisions we aligned on. Here’s why we can’t make a change. Here are the cost implications. Here are the ramifications. We’re going to move forward. If it’s a tweak – change this accelerator, change this threshold level – you can do this until after the plan rolls out. But as far as large structural changes, we’ve made it clear.”  

I don’t know if you’ve ever seen that movie Armageddon where there’s an asteroid coming in and there’s a little plane on the computer, where, if the asteroid passes that point the earth will blow up. We sort of set that up for the sales compensation design changes. We have said, “Beyond this date it is not feasible to make structural changes because quotas can’t be set on time. You won’t be able to pay people on time because you’ve got to redo the structure of the Oracle or Callidus or Excel or however you’re calculating sales compensation.”

You lay out exactly what the implications are, right? So if the business says, “I value your opinion but we do want to make the changes.” Then you’ve got to make it very clear. “Ok, guess what? You’re not going to pay people accurately in month one; or quotas won’t be out until month two.” They can think through it and say, “What is the business rationale for the change? Are we willing to take that risk for the change we’ve requested?

 MARK DONNOLO: Good point. So the wheels start coming off at a certain point, if we go beyond that.

 PANELIST 1: Correct.

SGF Member: We definitely have this problem. We have constant change. We just recently went through a pretty large change and we’re just trying to get our arms around some things. We definitely had that issue ongoing.

 MARK DONNOLO: It seems, and you described it well, that having the authority to push back and let people know what the implications are, that things really do start to fall out. Have you been successful in being able to push back effectively?

SGF Member: Yes. One of the key things I think you hit on is making sure that we have leadership buy-in. If we don’t have leadership buy-in, it’s very difficult for us to limit the process. And a lot of times we’ve noticed what you’ve mentioned before, where we are trying to do the compensation plan as the forerunner rather than trying to support what the sales strategy is. I think sometimes we get it backwards. We try to flip flop that to indicate we need to know what the strategy is and we’re really here to help set the behavior vs. drive that behavior. I think that’s something that’s really important. But I think at this point the success we’re seeing is making sure we’re getting executive buy-in. If we don’t have that it makes it really difficult.

This is the first in a three-part series. Read Part II here and Part III here To learn more visit SalesGlobe or email mark.donnolo@salesglobe.com. 

 

 

The Revenue Roadmap

The Revenue Roadmap model is something that we put together after working with hundreds of companies and asking, “What is the difference between high performing sales organizations and the average (or lower than average) organizations?” It really comes down to four major competency areas: Insight, Sales Strategy, Customer Coverage, and Enablement. These four disciplines, and their relationship to each other, provide a context for any driver of sales effectiveness – especially compensation and quotas.

1. Insight: Insight refers to how much we know about what’s happening in our market and understanding what’s happening with our competitors and our customers. If we don’t have our finger on the pulse of the macro market, we can’t develop our strategies with any degree of precision.

2. Sales strategy is an action plan to achieve a sales goal. The strategy converts high level (often financial goals) down to the front line that we can take to market. So it involves the types of services and products that we’re going to offer, our customer segments and our target customers. We have to have a solid value proposition for those products and services that translates well into a message sales reps can take to the customer.

 

3. Customer coverage: Customer coverage refers to how we align to our customers in a very practical, tangible way. What types of sales channels are we using? Direct sales organizations or other types of third party channels outside the organization, such as resellers, distributors, or other partners that help us during the sales process. The sales roles and the structure define how our organization lines up to the customer. Are we using different types of account managers, and are they focused on different segments? Do we have major account managers? Do we have new business developers?

The sales process itself should simplify customer coverage by outlining how the organization moves from the generation of an opportunity through the close and implementation. (And one of the pitfalls of simplifying the sales process is putting too many parts of the process on one sales role.)

4. Enablement: Once we’ve answered all upstream questions – Insight, Strategy, and Coverage – we finally get to the level of enablement. Sales compensation, quotas, recruiting and development of people and all the other support programs live here. But none of these programs – or the people they were designed for – can succeed without a solid foundation of Insight, Strategy and Coverage.

 

To learn more visit SalesGlobe or email mark.donnolo@salesglobe.com. 

How to Set Bad Quotas and Destroy Your Comp Plan

If quotas are so critical to the performance of a business, why are they set with so little thought or methodology (with apologies to those who put in the thought and methodology)? Typically, a team spends months designing a compensation plan, and then hurriedly sets goal numbers based on financial information handed down by CFOs. Poorly designed quotas can significantly weaken sales comp plans. If quotas don’t represent true market potential, the sales comp plan itself will break down. And if the plan doesn’t perform as designed, ultimately the business could be at risk.  

So here are the top five ways to set bad quotas and accidentally sabotage your business:

1. Set quotas using historic information. According to a recent SalesGlobe survey, the top quota setting challenge companies are facing today is that quotas are driven by historic information; they don’t represent real opportunities in the market. Instead, quotas are set looking in the rear view mirror; we’re not looking at market potential – at both those positive opportunities and the places where prospects have dried up.

2. Don’t bother to have your quotas ready by month one. In about 30% of companies, quotas are not ready in the first month of a new comp plan. In fact, quotas actually may not be ready in the first quarter of the year. It happens because a lot of times the numbers aren’t ready until the end of the year, and the quota setting process can’t get started until those numbers are ready.

3. Adjust quotas mid-year. Because quotas aren’t ready by month one (and a few other reasons – legitimate and not) about half of companies will adjust quotas during the year – legitimate reasons and not. (Of course, when adjusting quotas, it’s really essential to have policies for why you would make those adjustments.)

4. Punish your best reps by giving them a higher quota every year. Companies that don’t have an effective quota setting process inadvertently create a performance penalty. The highest performing reps are rewarded with a higher quota each year, often in the same increasingly saturated territory.

5. Make the quota setting process top secret. About 29% of companies we surveyed said the process wasn’t transparent. People don’t have any idea how their quotas were set. And about 29% said they don’t believe in the process. Inequitable quotas weaken the effectiveness of the sales comp plan and raise questions about the accuracy of the information.

There’s a pattern in these bad practices, which I think is really fascinating. The top issue is about information: quotas don’t reflect market opportunity. So quotas are not good because they’re not representative of what the sales reps can do. But the other challenges are around people and around process. I think that’s a key point: is that as much as you get into the idea of the quota being a number, it’s very much about the process and abut the people.

To learn more visit SalesGlobe or email mark.donnolo@salesglobe.com. 

 

Top Comp Challenges — What’s Yours?

Every year, SalesGlobe conducts a survey to find the top sales compensation challenges. And as varied as businesses are, as unique as some industries are, so often sales compensation problems unite them all. Below are a few of the top challenges that plague sales organizations large and small.

1. Setting effective quotas. Almost every year the top sales compensation challenge is actually setting effective quotas. And arguably, quotas aren’t even part of the compensation plan. Quotas are typically set after the compensation plan is designed. But quotas are the linchpin between the compensation plan and performance. You could have a very effective compensation plan, but ineffective quotas can derail the compensation plan. Quota setting, obviously, is critical.

2. Differentiating top performers. Too often in companies, it’s easy to make a good living with a mediocre performance and very difficult to make a great living, even if you knock your quota out of the park. How we do we take the top people and differentiate them significantly from the mid range or the lower performers? We call the solution the Reverse Robin Hood Principle: take the performance pay from the lower performers and provide that to the higher performers with the objective of being able to recruit and retain the best talent.

3. Supporting the sales strategy and sales roles. One of the first steps in designing a sales compensation plan is to make sure we understand the direction of the business. How do you connect the corner office to the front line? The vision of that C-level whether it’s the CEO, CSO or COO, has to flow through in the compensation plan. It’s amazing the number of times we see a disconnect between the priorities of the business and what’s actually being paid for.

4. Driving solution selling. How do we make sure that we’re enabling solution selling through the sales compensation plan and that solution selling is also being supported through other elements of the growth management system? Solution selling itself cannot be driven by paying people multipliers for different sets of products. Product mix is actually a surrogate for solutions. Effective solution selling starts with the strategy and understanding directionally where we’re going. Enable people to sell solutions and have the right offer. Then compensation can come into play and make sure we can motivate people in the right direction.

5. Keeping the organization engaged.  This was a bigger issue in the past couple of years than it is at the moment.  But over the last couple of years it’s been a big question: how do we keep the organization involved when they’re not hitting their quotas and they’re not in the money on their sales compensation? If we have people floating down around 80%-85% of quota, how do we keep them from riding out the storm and waiting for the year to pass? Are there other types of reward and recognition, or are there adjustments we can make to the plan?

6.  Plan complexity. Plan complexity tends to be an underlying issue and an underlying challenge in most organizations. We see this in particularly complex organizations or organizations that are oriented around multiple products or services. When we try to represent too many things in the sales comp plan we create complexity. Then two things happen. First, the message of what the sales comp plan is telling the organization to do starts to break down. And second, we increase the complexity and the difficulty of administering the plan.

Of these six challenges, what is the biggest problem for your organization? Or is there another challenge not on this list?

 

To learn more, visit SalesGlobe or email mark.donnolo@salesglobe.com. 

Top 5 Ways to Make Culture and Compensation Sync

Consider your current sales culture and the following points when evaluating and designing a compensation plan.

1. Understand the factors that define culture in your organization. What are the assumptions that surround decision making? Are these flexible or hard-lined? Identify the sacred cows in your organization, and gauge whether they are healthy or not. If your sacred cows are unhealthy, what are the gradual steps that can be taken to remove the sacristy and shift toward beneficial cultural elements?

2. Acknowledge how well your organization adapts to change. Whether change is a welcome part of your business or is avoided at all costs, few organizations can survive without some degree of evolution. Understanding your organization’s tolerance for change will suggest ways to manage necessary changes in compensation that may affect the entire business.

3. Align the goals of the sales compensation plan with the goals of finance. When properly aligned, both sales and finance are happy, even within a dysfunctional culture.

4. Healthy cultures enjoy transparency. Crystal-clear financial objectives help to create simple compensation mechanics that motivate the sales people in the right direction. Visibility across the many functions that are involved in sales compensation limits the confusion that can muddy the waters.

5. Make your culture a competitive advantage. What does your ideal culture look like?  Add procedures and processes where chaos rules and release the grip of authority where decisions can be made lower down the ladder.

To learn more, visit SalesGlobe or email mark.donnolo@salesglobe.com. 

Defenders of the Status Quo: Compensation and Culture II

This is the second in a two-part series. Read Part I here.

 

Every company has its defenders of culture who – for better or for worse – maintain the status quo. Close inspection of what these people are defending reveals the root values of the organization. The root values branch out across the company and manifest as various practices by each function, from sales to finance.

But culture is organic. It evolves. And sometimes you have to prune it back a bit to keep it in shape. Not surprisingly, changes to the sales compensation plan inevitably breed conflict.

In our work with companies, a few compensation challenges stand out:

1. Job roles. Conflict can arise from inconsistent definitions of job roles. A company we worked with recently said, “We want to put a new business developer role – an aggressive hunter role – in the organization.” But that was very contradictory to the service-oriented, account management culture they had encouraged for years. So there was a question of whether to move current people into those roles or bring in new people. Current people felt threatened and worried about a potential loss of income.

2. Paying top performers. Compensation issues such as pay mix and threshold present questions as well. An aggressive job role demands a certain pay mix and threshold, which might conflict with a moderate culture. Certainly if we have plans that provide less pay on the downside and more pay on the upside (so you’re paying a significant amount more to top performers) can conflict with a culture that’s accustomed to less disparity.

3. The timing and urgency of the plan. We recently worked with a company that has two different organizations. One is paid on bookings; the other is paid on billings. They have very dissimilar dynamics and very distinct cultures because of differences in the way they’re paid (they’re paid that way because of separate features in the business). The part of the company that uses bookings has more contracted revenue. So they can pay on bookings and the rep can move on to the next deal. With billings it’s not a hard contract, so it takes a while for that revenue to actually show itself. And the company wants the rep to be involved. It creates a very different level of urgency and a different level of account management. The selection of a mechanic or a measure like that can make a big difference in terms of how that aligns with culture.

4. Governance. When you make a change in the plan, how do you accomplish it within the company’s cultural tolerance for change? For example, if a company wants to put in a new customer selling role, or really make that a focus in the organization, how fast should we make that change? Is that something we can afford to do right away or should we do that over a period of steps in order to make it a little easier for the organization to handle that change?

Even though change is inevitable, every company has its defenders of the status quo. In fact, according to research, when implementing a cultural shift, 20% of the people will be change friendly, 50% will be fence-sitters but 30% will deliberately resist or try to make the change fail.

 

To learn more, visit  SalesGlobe or email mark.donnolo@salesglobe.com.

Compensation and Culture: Subtle — and Strong — Powers

 

This is the first of a two-part series. Read Part II here.

A company’s culture and its sales compensation plan are related by one element: power. Both have the ability to dictate the direction, speed, and effectiveness of an organization. When we work with companies who want to dramatically change their sales compensation plans, we immediately look at their culture.

Consider these questions:

  • Is our organization closer to a Cisco or a Georgia Power?
  • Can our culture sustain change?
  • How difficult will this change be?
  • Do we encourage ideas from the front line or are we a top-down driven organization?
  • When was the last time we implemented a change in our compensation plan, and how well was it received? (Usually the longer the current comp plan has been in place, the more resistance the current culture will be to any changes in incentive pay.)

There are several factors to take into account when evaluating your culture:

1. Urgent versus laissez-faire. Company culture can affect the level of urgency. For example, sometimes an organization might say they want to step up the level of pressure in the sales organization; the leadership doesn’t feel people are really pushing. At one company people were taking vacations at the end of the year rather than trying to close business. The culture permitted lackadaisical behavior and lacked urgency.

2. Visionary vs. reactionary. Many organizations are trying to move toward a visionary culture; a more solutions-oriented culture versus a transactional culture. Most companies are familiar with the complementary/contradictory relationship of hunters and farmers and the differences in the culture they pose, in terms of how your sales organization is oriented.

3. Team-oriented versus individually-oriented. Some companies prefer people to collaborate, while others prefer each man for himself.

These factors act as a foundation when we begin to look at sales compensation. How a company defines culture offers important hints about the priorities of the business, which are the starting points for any well-designed sales compensation program.

 

To learn more visit SalesGlobe or email mark.donnolo@salesglobe.com.

Sales Comp for Strategic Selling

Think about the strategic importance of a particular product or service. Usually, there’s at least one product or service that is strategically more important to sell than others. But sometimes these products or services are outside the comfort zone of the reps, for one reason or another. We often hear: “We’ve got these new products we want people to sell. They’re really important, but the reps aren’t selling them because they’re focused on the current stuff or the core products. How do we motivate behavior there?”

A lot of times, the answer is weighting. It could be literal weighting of a commission rate, or it could be weighting through linking measures together. But it’s basically like product bundling. It’s saying: we’ve got some really good stuff here that our customers are not buying or our reps aren’t selling, but then we’ve got the stuff the reps are all going after. How do we get them to sell more of the stuff we want the company to sell?

There are two variables to examine here. You could look at the strategic importance for the company – on a scale of unimportant to very important. Then you could look at the difficulty for the rep to sell that, or the attractiveness of the rep to sell that product or that service, on a scale of not difficult to very difficult.

So very simply, the middle would be selling something of average difficulty and average strategic importance. That, call it a commission rate, represents a one. So average difficulty, average strategic importance is a commission rate of one. But then as it gets more difficult for the rep and more strategically important for the company, that’s where you really start to weight things up.

Several years ago we worked with a directory company (similar to the yellow pages advertising business). For years they sold advertising for the big book that ends up on your doorstep. Then they came up with online advertising through Yahoo or YellowPages.com. And they said, “We want to sell more online advertising.” But there were problems. It’s a different sales cycle and the advertising goes up immediately; customers didn’t have to wait for the book to publish. The company liked that better because they get immediate revenue and more immediate advertising for the customer.

The company knew strategically that’s where they were going in the future. But the reps wouldn’t sell it because all the money was in the yellow page books. So the company asked: “How do we get them to do that?”

Weighting was one answer. We looked at the strategic importance and we started to weight up the online advertising. The company made an investment in that online advertising. They were paying more dollars in incentive for online sales than they were for the published directory sales. And what happened? It pushed the company in the right direction and set the course for the future.

Weighting offers one way of sorting out those strategic priorities.

To learn more, please visit SalesGlobe or email mark.donnolo@salesglobe.com.

 

Quota Setting: Historic Based vs. Market Based

Effective quota setting is a combination of art and science. While too many companies set quotas based on historical information, quotas based on the real market potential is a much better approach. Consider the following:

1. Flat Quotas. Flat quotas are usually used when companies have unconstrained market environments. You might have wide open markets where reps could go anywhere in the country; or the markets have unconstrained potential and the reps have relatively equal capability. In this situation it could make sense to set flat quotas; for example everybody gets a $5 million number.

2. Historic Quotas. For better or for worse, most organizations use historic quotas: they take what people achieved last year and add a projected increase.  The risk is that history does not necessarily represent the future potential of the business.

3. Market Based Quotas. Moving toward a quota-setting process that is driven by market opportunity or account opportunity requires taking your historic numbers and modifying them based on relative market opportunity (e.g., relative growth rate of the market, relative growth rate by product, relative potential, competitive environment). Moving to an opportunity driven approach can incorporate market level data, account level data (customers and prospects), or a combination.

How to Get There

Most companies move toward opportunity-driven quotas in steps over time, starting with a market level hybrid solution and eventually progressing to account driven goals that are formed in a bottom-up, top-down process. Improving the quota process can be a challenge for organizations because it requires the cooperation of several different roles. Many sales organizations also have to battle the legacy factor: if quotas have been set by the finance organization using historical data for decades, it may have become a sacred process – even if it’s a bad process – and will be difficult to change.

But there are risks to maintaining those bad processes. According to a survey by SalesGlobe, 84% of sales organizations say poorly-set quotas put the motivation of their sales force at risk; 59% say that not fixing the process contributes to missed targets for the business, and one in three companies said high sales turnover was a potential consequence of poor quotas.

The End Result

The ultimate goal for most companies is account opportunity driven quotas. Account-driven quotas go down to the account level – our customers and our prospects – and find indicators or predictors of sales potential, apply those out to our entire base of customers and prospects, and use that information for quota setting. Initially, as the organization begins on the path towards account opportunity quotas, they collect this information and use it for territory design and deployment. Once they are comfortable with the data, hot spots of opportunities and markets become apparent, and they can set quotas that are much more opportunity-based.

It is critical to make sure the quota setting process works correctly because it is so closely tied to both the motivation of the sales organization and to the attainment of the company’s objectives. Over the long term, a broken quota-setting process can erode the sales performance and put the business at a disadvantage. It’s imperative that companies examine their quota setting process and develop their case for change around the kind of risks it presents for them and the potential positive impact that can be gained from making an improvement. Setting and allocating quotas effectively will ensure the sales compensation plan is motivational, help us more effectively align sales costs and revenue, and increase the predictability of the company meeting its business objectives.

If you have questions or require assistance please contact Mark Donnolo at mark.donnolo@salesglobe.com, visit us at SalesGlobe, or call (770) 337-9897.

Pay vs. Performance: Do you know what your plan is paying for?

It’s almost September. Do you know what your plan is paying for?

It might sound obvious (we’re paying reps to sell our product/service!) but a quick analysis of pay versus performance can be revealing.

So what’s pay and what’s performance? ‘Performance’ looks at different types of performance measures. We might look at revenue, bookings, revenue growth, year-to-year change, performance to quota, or other measures. What’s ‘pay’? Pay may be total pay, total compensation, total incentive pay, or maybe  just incentive pay for that particular measure. Basically, once we recognize what the big priorities are in the business, we want to understand what the plan is paying for and make sure it matches our larger strategic objectives.

We recently worked with a company that said achievement of quota was the most important objective of the sales organization. So we looked at the correlation between attainment of quota and incentive pay. But we discovered, however, the company was actually paying for total bookings (or total revenue) for the company. There was a much tighter correlation between what they were paying and total revenue for the company, than there was for attainment of quota.

So we told them, “Guess what? You’re not paying for quota attainment. You’re actually paying for bookings. If quota attainment is still your strategy, you may want to change what you’re doing.”

It’s a simple examination of some facts that, within a little compare and contrast graph, can uncover huge potential pitfalls.

Key Considerations

  • Are the most important business measures well correlated to pay?
  • Are the top earners the top performers?
  • Are there aberrations in pay relative to performance?

Components

  • Pay Components – Total compensation, total incentive, incentive by measure.
  • Performance Components – Bookings, revenue, profit, net growth, quota attainment in total or by measure

To learn more, visit SalesGlobe or email mark.donnolo@salesglobe.com.

The Quagmire: Where Performance Measures Get Messy — A Roundtable Discussion

Mark Donnolo is managing partner of SalesGlobe.

 

Companies that have long sales cycles often use leading indicators to pay those sales reps – after all, they’re working long hard hours but the revenue might not come in for a year or more. Leading indicators can work very effectively when the standards are clear – a design win, for example – but what if your industry lacks clear indicators?

Members of the SalesGlobe Forum met recently to discuss this performance measure potential quagmire.

SGF Member: Can you consider the pipeline a leading indicator?

MARK DONNOLO: I know a couple firms in particular in professional services – very large professional services firms – that will actually pay their business developers on the pipeline, which is actually kind of hard to believe. It’s very, very unusual. Now, I’ll say it’s a combination of partners and sellers and these people are highly trusted. If there’s a violation of that trust that person’s probably not going to be around for another year. So there’s a code of conduct. In a lot of sales organizations you can’t do that. I wouldn’t recommend that at home. But potentially, with leading indicators, you could go that far.

SGF Member: If you use a leading indicator – like a contract signed, for example – we’ll do something like that for a long sales cycle. We’ll pay an upfront bonus based on the potential value of that. But that merchant has to be boarded already so we have a chance to make some revenue.

But we also have a policy that says, if we don’t earn the revenue the rep says we’re going to earn according to the sales contract we have the right to take it back from a person. That can get a little risky, I think, because it’s sort of like a de-motivator, right?  That’s tricky, when you get a year down the road and you say, “Oh well, we didn’t earn this revenue so we’re now in a
position to take money back from you.” That’s tough. But I don’t know of any better way.

SGF Member 2: But it’s better than waiting until the money came in.

SGF Member 3: We do the same thing, paying people on bookings rather than billings.

SGF Member 4: Sometimes it’s how you position it. We position it as advance.

SGF Member 5: We did it as a recoverable draw.

SGF Member: Do they have to earn it back?

SGF Member 5: Yes. We paid them at the beginning of the month. They had a draw, based on two measures: revenue and margin. And it was typically between six and eight weeks, and quarterly we measured up. If you were on plan, here’s your bonus. Your paycheck could vary, but the rep always knew if the customer didn’t pay his bill.

SGF Member 2: Do you keep out a portion of that, when you pay up front? Do you pay only a portion of what the commission was and then pay the rest on actuals?

SGF Member 5: It’s not a draw like that. This is sort of in addition to what they’re going to earn over time. It’s like a signing bonus. We have a recurring revenue stream and we pay them for a certain period of time on that, but that period of time may not start for 9-12 months from the time in which they make the sale. So we can’t wait until 9-12 months later, we’ve got to give them something now. But we don’t take it as a draw against anything in the future. They’ll still earn what the comp plan says they’re going to earn.

 

MARK DONNOLO: I have a couple of thoughts, because we run into this a lot.

The first is, when you have a long sales cycle, you still want to have a ‘pop’ – some payment to the rep – to recognize the event when it happens. That’s important because it creates excitement. One thing I like to do is understand what the actual risk of take-back is. A lot of that is going to be a question of policy – whether you want to forgive those advances or whether you want to actually take the money back.

If you look historically at the pull-through on those kinds of deals, you can get a sense of if and when that will work in your organization. You can also get a feel for the amount you’re paying. Sometimes when we do an upfront bookings bonus, we’ll discount. For example, if we’re going to pay on the value of the first year’s bookings we may discount that back a certain percentage. We may say, “We’re going to pay 60% of the first year’s bookings because we know on average 60% of that revenue actually comes through, so we’re fairly safe. So we discount it back.” The idea is they’re definitely getting something up front for that ‘pop.’

Upfront payments also drive certain behaviors. A lot of times if you pay a lot up front, when the deal closes the rep is off to the next deal. So if you want them off to the next deal, pay them in full because they’ll be gone. If you want them to stay involved, pay them very little, because they’ll stay involved and pull the rest of the deal through. The bad news is they’ll be hanging around the hoop – they’ll probably turn into more of an account manager role as they try to bring in the rest of the deal. You may say, “Well just get out of here and go sell the new thing.”

You have to find the right balance between the amount of money and the role of the rep.

 

To learn more, visit  SalesGlobe or email mark.donnolo@salesglobe.com

Gauging Greatness: Which Performance Measures are Worth Tracking?

 

You have the perfect sales strategy and some pretty awesome products. Now it’s time for  your sales organization to make the sales. But not just any sales, the right products to the right customers to make the company a lot of money.

The sales compensation plan is the perfect way to motivate the sales organization. And peformance measures can track success or failure. Less is more here. The fewer – and the smarter – your performance measures are, the more success the rep and the company will have with the compensation plan and the overall strategy of the business. There’s a whole swamp of possible performance measures, and it’s helpful to have a few basic structures to frame your thinking.

1. Financial measures are the most important. These are the bank measures, the things that you see on the income statement: revenue, sales, bookings, profit, income or even units, depending on what type of business you are. If you had a compensation plan that measured only one thing, you’d want to have financial measures because they produce results for the business.

2. Strategic measures are second in our hierarchy. They can steer the performance of the sales organization’s strategy. They say, “We want to sell more but we want to do it in certain ways.” We want to sell certain types of products, or we have a certain type of product mix. Or we want to sell to certain types of customers.  We want a certain contract length, so we want to sell more three- and five-year contracts than one-year contracts. Or, back to customer type. We want to do a better job of retention or managing our churn rate of current customer revenue.  Or we want to do more in terms of customer acquisition. We tend to live off of our current customer accounts.

Strategic measures say, “Sell more but do it in certain ways.” If I had space in a plan for two measures, I would want a financial measure and I want a strategic measure, and that would be it.

3. Leading indicator. Some sales organizations are in a really long sales cycle, and the reps may not actually see revenue for a period of time. Or, the organization has new business developers out there building a base that will take some time to evolve, but we can’t pay them on revenue because it doesn’t really exist yet. So what do you do there?

Some industries — for example automotive and semiconductors — use leading indicators in their plan. They’ll find customer recognized types of measures that they can put in the plan to lead up to revenue.

In the automotive industry they’ll use a bench prototype as a leading indicator. For an auto part components company, a bench prototype would mean the customer is interested enough to ask for a prototype; and they’re probably going to be buying from you. So that’s a leading indicator we might actually pay the rep for.

What are the best performance measures you’ve used?

To learn more, visit SalesGlobe or email mark.donnolo@salesglobe.com.

The Next Generation of Comp

If you’re 35 or older, chances are you value cash as the best compensation and are willing to put the hours in at the office to earn that cash. The longer, the more, the better.

If you’re younger than 35, especially if you have a family, 100 hours a week isn’t going to cut it, no matter the value of the cash carrot.

According to a new Fortune article by Ethan Rouen, what people really want beyond being paid enough and being paid fairly is meaningful work, including autonomy.

 

“Logistical autonomy can simply come in the form of an employer offering workers more flexibility in their schedules so they can catch their children’s soccer games,” Roeun writes. “Intellectual autonomy, on the other hand, is more nebulous and is exemplified by companies like Google, which lets its employees set aside a significant portion of their work week to think about their jobs, their company, and how they can improve both.”

 

Which would you rather have?

 

Read the full story here.

 

To learn more, visit  SalesGlobe or email mark.donnolo@salesglobe.com. 

 

Strategically Speaking …

 

Sales compensation is first and foremost about strategy – the path to the larger goals of the entire company. It’s the foundation for the whole thing. If the strategy isn’t clear, the sales comp plan – no matter how good it is – can’t move the organization in the right direction. In this sales comp design season, before the calculators come out, make sure the objectives are clear. Consider the priorities of the business and acknowledge which ones sales comp can affect.

We recently worked with a company who outlined their top priorities for the business for that year. Those priorities became our north star for designing a new sales compensation program; we knew what we needed to accomplish. And as usually happens, when we got down deep into the compensation work, people start saying, “Well, do we really want to do that?” and “Finance is not going to support that.”

We responded, “Look, here’s what you want to accomplish as a business. And we’re going to have a hard time going back to the CEO and saying we missed a couple points that you said were important.” Clear priorities helped us to articulate where we were going and to drive change in the organization.

There are several different dimensions of strategy that can help guide you when aligning the overall strategy with the sales compensation plan.

1. The customer dimension. As you look at sales jobs, what customers do we want to focus on? Do we want to penetrate current customers or acquire new customers?

2. What market segments should we focus on: small, mid-market, or large? Should we focus on certain industries or certain needs-based segments?

3. What products will we offer?

4. What channels will we use? Will it be a third party channel? Will it be a channel manager that’s covering that third party channel or a direct role?

5. What do we want to accomplish financially, especially in terms of the ROI of the sales comp plan?

As we break apart this sales strategy question it helps to have some structures to be able to look at and say, “Ok, here’s what we want to accomplish: we want to go after customer penetration this year within the financial services segment, and we want to add more product services to our core products. We want to leverage our third party partners more so we
don’t want to try to sell everything ourselves, and we want to do it within certain financial parameters.”

You can start to make some statements about what we want to accomplish from a sales strategy standpoint. Why is that useful? Because we can translate that down to the sales roles, and we can translate that down to the plans themselves.

It sets the stage for a good structural approach.

To learn more, visit  SalesGlobe or email mark.donnolo@salesglobe.com.

A Better Way to Set Quotas

Too many companies set quotas based on last year’s sales. It’s the wrong way, and we hear it all the time:

“How else would we set quotas if we didn’t just take historic results and project ahead 10%? Can we improve how we do it?”

The answer is yes, and it’s crucial to do so. Quota setting must be a cross-functional process, and sales reps need to see a clear connection between their pay and their performance.

Cross-functional cooperation. Ironically, quota setting is very often controlled by those with the least visibility to the market: for example, the finance team, the folks who love the science of it but don’t know the market and customer. The goal comes down from on high, from the top of the organization, driven by investor expectations or senior management requirements. It then cascades through the organization – an often inequitable division of the pain. This process does not look at market opportunity as much as a sales or marketing-led process would because senior leadership does not have as much visibility into the market. Quota setting should be a cross-functional process that pulls together several different functions including sales, sales operations, finance, and even product management.

Pay and performance connection. Effective quotas demonstrate a connection between pay and performance. Our research and consulting experience tell us that about 60% of companies have at least 40% of reps at or above quota in a normal year. And high performing sales organizations have between 50% and 70% of reps at quota in a typical year. Two years ago, 2009, was an exceptionally tough year for quota attainment. Only 30% of companies had at least 40% of reps at or above quota in 2009.

Reps above quota hit the “excellence level” – usually the 90th percentile level of performance – which should link to the upside accelerators in the plan. The threshold group represents the low performers who are usually at the 10th percentile and below.

Some plans will run a straight line payout from 1% of quota to 100% of quota. Others, which often represent a more performance-oriented culture, will use either a hard threshold or a ramped payout that pays less up to the threshold. This decision often relies on the culture of the organization and the characteristics of the sale and revenue flow for each type of sales role.

The important questions are:

  • How do we set a reasonable stretch goal for the organization based on the market?
  • How do we equitably allocate that goal as quotas to the organization?
  • What portion of our organization do we expect to hit quota?
  • How do we build the sales compensation program to drive performance to those goals?

These questions point us toward a better way to set quotas.

To learn more, visit us at SalesGlobe.com or email mark.donnolo@salesglobe.com. 

The Many Wrong Ways to Set Quotas

Believe it or not, over 30% of companies do not have quotas ready by the first month of their fiscal year, and some companies often delay several additional months. Sales reps are left to figure out what they are supposed to be doing on their own. Companies assume reps are working toward the same goal they had last year, plus x percent; but reps often claim they don’t know what they are supposed to be doing. Even after quotas have been set and allocated, 50% of companies continue to make adjustments during the year.

We hear several recurring questions around quota setting:

1. Should we set quotas on historical performance or market opportunity? Most quotas do not reflect actual market or account opportunity; many quotas actually weaken the sales compensation plan, and many put business performance at risk.

2. Are we actually penalizing our best reps with our quota process? We sometimes put our best reps at a disadvantage with a “performance penalty.”  Reps who do well in the organization get rewarded next year with a bigger quota based on the current year’s performance.

In future years we may penalize them even further. By continuing to give the highest performing reps the biggest quotas, we increase their goals as their market share increases and their penetration of that market increases; but, over time, their potential untapped market opportunity decreases.

3. Is the issue performance or is it the quota? Often companies will look at quota performance – the number of reps hitting quota – and determine the organization is not doing well in terms of quota setting. This is only part of the story and may be a symptom of a larger sales effectiveness problem. The issue could actually be sales performance.

4. How can we incorporate forward-looking metrics? If looking in the rear view mirror at historic results is putting us at a disadvantage, how can we do a better job of looking ahead? Considering factors such as total market opportunity, account level sales potential, relative growth rates, and rep capability may reveal an answer.

There are many explanations for why companies continue to have issues with quota setting. One reason is company legacy: “We’ve always done it this way over the years, and we’ve never really looked at other ways of doing it.” Another reason is that the organization runs out of time and resources.  Consider how much time is put into designing and evaluating the sales compensation plan during the year. If we are on a calendar year fiscal, we might start in August, work up through November and finish designing the compensation plan in
December. And then someone will say, “Next week we’re going to set quotas.” People will go off into an obscure, smoke-filled conference room and somehow produce magic numbers. By the time quota-setting comes around, we have exhausted our time and resources, and we don’t have enough of either to properly determine quotas.

Quota setting can also be a challenge if we don’t have good data, or we don’t have a good methodology. This begs the question: How else would we set quotas if we didn’t just take historic results and project ahead 10%? Can we improve how we do it?

 

To learn more, visit  SalesGlobe or email mark.donnolo@salesglobe.com. 

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