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. 

 

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.

 

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.” 

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.

What’s Your ROI on Coaching?

We can all probably agree that coaching and development are important, but we can also probably agree that good coaching programs can be expensive.  So, in terms of a financial return, what can you expect for your investment?

In a recent SalesGlobe survey, about half of companies (48%) reported that they get a return greater than their investment in coaching and development, or a return multiples greater than their investment. And an additional 32% of companies at least recover their costs from coaching.

graphOn the “return” side of the ROI calculation, the outcome from coaching is not always clear or near-term. While productivity levels and close rates may appear to be clear metrics for coaching success, those metrics may be driven by other organization and market factors in addition to the coaching program. Improvements in sales capability can develop over time as well. For instance, learning more effective methods for developing the business case and value proposition for strategic accounts may yield results months later when those opportunities naturally present themselves over a long sales process. While the effect of coaching is there, its impact may be latent for some period of time.

But measuring ROI is not an exact science. Companies report several challenges in tracking this information. For example, on the “investment” side of the ROI calculation, coaching in many organizations is conducted informally at the manager level and is not practiced consistently in the field. This makes it difficult to measure the actual resources, both hard and soft dollars, invested in coaching. Also, coaching is often blended with other management roles and not clearly tracked by the organization.

What sort of financial returns should you expect on your coaching investment?

 

To learn more, 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.

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. 

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.

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.

 

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 Art & Science of Quota Setting

Sales compensation is one of the biggest motivators of performance, but it is not without obstacles. One of the top challenges we see is actually not a compensation issue, but a quota issue: how to set effective quotas. Successfully setting quotas is part science: part process and numbers-driven. It’s also part art: part human and thought-driven. So what’s the right balance between these two, and how can companies continually and effectively set quotas?

Check out our report The Art & Science of Quota Setting, which features a panel discussion of best practices for quota setting with a team of experienced sales operations executives.

If you have questions or require assistance in addressing these topics or other sales effectiveness challenges in your organization, please contact us at  SalesGlobe or mark.donnolo@salesglobe.com.

People and Politics of Sales Compensation II

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

While the group of folks charged with designing a sales compensation plan can put the “fun” in dysfunction, the group can also work beautifully together. After all, they share a common goal — to create a comp plan than harnesses all that power behind the sales force, and make everyone some money.

Consider your current mix of people and the following key points when creating the sales compensation design team.

1. Listen to the sales organization. As participants in the plan, this group can offer insight into how well the plan works, as well as any challenges. Interview sales managers, survey front line sales reps and be receptive to feedback throughout the year.

2. Include a cross-section of leadership in the planning and design process. Leaders from the major functions involved with sales and sales compensation should be
included during when making major decisions. Involving executives from sales leadership, financial leadership, administration leadership and human resources leadership ensures each organization has a voice at the table.

3. Follow a design guide and establish a decision making procedure. A design guide outlines the process – soup to nuts – of evaluating and creating a sales compensation plan that is aligned to the goals of the business. A guide keeps people on track and focused on the strategic goals of the plan, and prevents individual functions from getting sidetracked by a separate agenda. Make sure the guide outlines how decisions will be made within the group to prevent disagreements from becoming stalemates.

4. Gauge and then respect your CEO’s level of interest in the design process. While some CEOs like to be involved as the compensation plan is designed, others just like to hear the final number.

We’d love to hear who is involved in your organization’s sales comp design team and how it works — or doesn’t.

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

 

The People and Politics of Sales Compensation

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

The people and the politics of sales compensation is about the softer side of sales compensation – who’s behind the scenes collaborating (or not); the steps in the process; how well the process works; how people work together; commonalities between the various functions involved; and solutions for challenges.

The human element touches sales compensation throughout the entire process. It happens during the year – asking sales managers to participate in the plan and convey how the plan is working; asking sales operations and HR to communicate and evaluate the plan. The human element assembles the compensation design team and establishes the principles for how the team will make decisions – who will crunch the numbers; who will evaluate the finished product and finalize the compensation plan. The human element determines the variety of perspectives included to make sure there is a well-rounded representation from the company. How they interact keeps it interesting.

Here are a few of the usual suspects:

1. The C-Suite. The C-level is almost always involved to some degree. Very often we see the C-level person – perhaps the CEO – pop his head in the room to ask, “Is this going to cost me the same or less than it did last year?” Other times we’ll have CEOs actually at the table and involved in the process. CEOs have very different levels of involvement in the compensation process, ultimately because CEOS, based on their personal preferences, have different degrees of comfort with sales compensation.

2.  Sales. Sales, obviously, is at the table, and they’re always asking for something (more money) often in the form of a bigger accelerator. They may grumble that HR doesn’t understand sales or what sales needs.

3. Sales Operations. Sales operations sometimes drives the process and other times responds to the process by trying to keep meetings organized and trying to devise a system that makes sense. Depending on where sales operations resides in the organization, these people can have different points of view. Sales ops most typically will be within the sales organization, but sometimes will be within finance or even HR. Where they sit, very often, determines their point of view.

4. Finance. Finance is typically at the table, either at the C-level or someone on the project team. They have an Interesting negotiating position. This perspective often brings some old cliché’s about sales: sales is overpaid; they have no value. Finance wants to negotiate: “If we have an accelerator on the plan, what are we going to take away on the downside so we can pay for the accelerator?”

5. Human Resources. Very often HR drives the process; and if they’re not driving the process they are certainly a partner. Their role is to looking at what’s happening in the market and make sure everybody is aligned with the market; try to bring some discipline to the process; and offer some expertise if that doesn’t reside on the team already.

6. Marketing. Marketing is not always involved in sales compensation, but sometimes they have an agenda, like sales. In a multiproduct or multiservice organization sometimes marketing tries to get a lever in the plan for each of the different products they represent, which can add complexity to the plan.

While all these interactions take place designing the compensation plan, the field sits and waits, knowing they will most likely get a bigger quota – often for a lower percentage increase in compensation. The sales compensation design process brings together many competing points of view and potentially competing priorities. It quickly, as we say, puts the “fun” in “dysfunction” in organizations.

Who are the people involved in your sales compensation design?

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

 

Rapid Sales Comp

We all know time can get away from us; and sometimes the consequences are bigger than others. When it comes to designing a sales compensation plan, it helps to have months of input and design meetings. However, it can be done quickly if need be. We can abridge the process for efficiency and still retain its power.

Consider these five points when designing a sales comp plan – even if you’ve run out of time.

1. Clearly define the sales strategy and roles, and align your compensation plan. Sales strategy and sales roles provide the foundation for the direction and actions of the business. Sales compensation should align with the sales strategy and motivate the sales organization.

2. Differentiate top performers. Make sure your plan rewards top performers competitively with the industry and significantly differentiates them from the average and low performers. Don’t over pay for low performance; instead, use those funds to invest in attracting and retaining the right talent.

3. Keep your plan simple and clear. Pay for three or fewer performance measures that match the strategy, and don’t put any less than 10% of target incentive on any one measure. Use plan mechanics (e.g., commission or quota bonus structures) that are simple and clear with minimal use of modifiers such as hurdles, gates, and links.

4. Formalize the solution selling process and use sales compensation to support it. Beyond the headlines of solution selling, define what it means to your organization, the sales process, and how the organization should work with customers. Don’t hard-wire sales compensation to solution selling unless the process and skills are well developed and
opportunities exist in all markets.

5. Develop a market opportunity driven quota setting process. Quotas are the lynchpin between pay and performance. A well-designed sales compensation plan can be rendered ineffective with poor quota setting. Make sure your quotas represent the growth opportunities in each market rather than a future projection from historic performance.

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

Strategy and Sales Comp Part II: Putting it in Action

With all the power sales compensation can wield, it pays to invest the time to connect sales comp with the strategy of the business. Below is the second installment of nine important factors to consider when designing a sales comp plan that will drive more revenue. Read the first five in Strategy and Sales Comp Part 1: Making the Connection.

4. Reduce the complexity of the sales compensation plan. Often, the more technical an organization is – or the more engineering-oriented an organization is – the more complex the sales compensation plans will be. There’s a temptation to include everything even remotely important in the compensation plan. The key, however, is to include the two or three things that are most important to maintain clarity of message.

5. Manage the crediting and compensation costsMake sure you’re crediting the appropriate amount to people involved in the sales process without over-crediting. It’s a balance. We don’t want a single credit in a team sale or a complex sales process, nor do we want to over-credit. If you have too few credits people run to the opportunity and then run away very quickly once they realize somebody else has grabbed the credit. If you give too many credits, too many people belly up to the chuck wagon, and it motivates the wrong behaviors.

6. Increase sales productivity. The right daily actions of a sales person increase the overall activity of the organization. Sales compensation can be a powerful tool to motivate the right actions. Use sales compensation as a lever to drive productivity and to create the right motivations in the organization.

7. Control channel conflict.
In a multichannel environment with a direct sales organization and indirect channels, getting those resources to align to the customer is essential for success. Get these parties to work together without competing with each other or degrading your value proposition in front of the customer.

8.  Build a sales culture. The sales culture is an unspoken but powerful force in the organization. But assessing it is fairly subjective. A lot of organizations will say, “We’re over the top in sales culture.” Others will say, “We need to move in the direction of being sales-oriented but we don’t want to destroy the culture that we have. That’s very important to us.” As you make changes in sales programs and sales compensation programs, ask how those changes are going to support the culture. Also question the degree of change the organization can handle to make sure that we don’t push it in the wrong direction.

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

Strategy and Sales Comp Part I: Making the Connection

Sales compensation is a major driver of behavior and performance in a sales organization, and therefore a major force behind growing revenue. It’s is one of the best tools a company has, yet too often it’s not given enough careful consideration during the design, implementation or communication phases.

Without connecting the plan into a strategy or a clear design process, issues arise. Too often people dump all the problems on the table and try to figure how to approach them. In those situations, the best thing you can do is understand the challenges and start to bring some logical approaches to them, one by one.

We see a number of sales compensation challenges that are consistent across organizations. Many of these challenges, however, are not all truly sales comp related but difficulties in other parts of the organization that trickle down to sales comp and require attention.

1. Differentiating top performers. How do you make sure the top people are actually paid the most and you’re not overpaying the lower performers? Making sure there’s a significant difference in target and actual pay for the true performers is critical for attracting and retaining the top talent.

2. Solution selling. Many companies focus on selling products and services, but as the markets become more competitive customers demand more. We see selling a solution as a way to manage those customer needs, a more effective way to be able to offer our product, and a path to differentiating our company. So how do we represent that in a sales compensation plan?

3. Keeping the organization engaged. During challenging economies it is critical to keep the organization engaged. In the most recent downturn there was a 10% shift back in the number of reps at quota or above compared to a normal year. That year begged the question: “How do we keep the organization in the game rather than having them ride the storm out and just get through the year?” If people are missing the marks with their sales compensation, how can we use the plan or other programs to keep people pushing ahead? If we have a lot of people at 85% performance or 90% performance to quota, how do we get them up a couple of points incrementally?

4. Reducing the complexity of the sales compensation plan. Often, the more technical an organization is – or the more engineering-oriented an organization is – the more complex the sales compensation plans will be. The temptation is to include everything that’s important in the compensation plan. The key, however, is to include the two or three things that are most important to maintain clarity of message.

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

Sales Comp ROI Best Practices

When determining the ROI you can expect from your sales compensation plan consider several drivers around ROI, and some ways to dis-aggregate the important questions.

1. Determine your strategy and the business objectives you are trying to achieve.

Understanding, for example, that you want to grow a certain product group or develop a certain market may change the way you look at ROI. You may be willing to invest a bit more to develop this market than you would on average or in your traditional markets. Isolate and evaluate ROI uniquely for that market.

2. Define how the sales compensation plan can help drive that strategy, and where its limits are.

The sales compensation plan doesn’t control everything. If you were going to sell a strategic product you know that the sales compensation plan can motivate people to sell it, but there are other factors such as availability of that product, targeting the right markets, the right sales messages, having the skill in the sales organization to do that, and having the right sales processes. A lot of other factors will play into whether you can actually accomplish that objective, in addition to the sales compensation plan. When you attribute success to the sales compensation plan because it helped you achieve certain objectives, often you have to understand that sales comp was just one piece of it.

3. Determine who you will pay.
You might look at ROI a little bit differently this way as well. Consider certain sales groups that were able to help you achieve that growth objective, versus the whole population. You can then look at the ROI on them.

4. Decide how much to spend.
We recently worked with a media company that traditionally sold TV advertising, and they wanted to increase their cross selling of online advertising. That’s a sales strategy; that’s an objective. What could the plan do? They wanted the plan to help them get a 10% average attach rate to their core product. Their television advertising will have a 10% attach rate of online advertising. They stated what they wanted to happen; next they examined who would do it and who would bring in the return on their investment.

They looked at the TV sales organization. They would be selling that online inventory cross-platform. So now they knew who they were going after. What were they going to pay? They expected an incremental spend of about 15% of the first year’s contracted program revenue. So this company basically took that idea and converted it into a statement.

We find it very useful to move any focus away from the number, much like in quota setting. Take the focus – and the argument – away from the number and break down the components driving that number; then, the conversation is simply a lot more productive.

Check out our report What’s Your Sales Comp ROI, which features a panel discussion of experienced sales executives on evaluating the return on sales compensation.

If you have questions or require assistance in addressing these topics or other sales effectiveness challenges in your organization, please contact us at SalesGlobe, (770) 337-9897, or mark.donnolo@salesglobe.com.

What’s Your Sales Comp ROI?

Return on investment is a topic that invariably arises when discussing sales compensation. Executives in sales, sales operations and especially finance want answers to three questions:

How much is the sales compensation plan going to cost us?

Is this a good investment of our money?

What should we expect back?

Check out our report,  What’s Your Sales Comp ROI, which features a panel discussion of experienced sales executives on evaluating the return on sales compensation.

 

We believe the findings in this report will provide valuable insight for your business. If you have questions or require assistance in addressing these topics or other sales effectiveness challenges in your organization, please contact us at  www.SalesGlobe.com or mark.donnolo@salesglobe.com.

Sales Compensation Culture

SalesGlobe Managing Partner Mark Donnolo discusses how sales compensation culture affects an organization at a 2010 SalesGlobe Forum event.

 

DONNOLO:

Many companies today want to become more sales-oriented as a business. So, they spend time trying to understand their sales culture: Is it more focused on operations or service to customers than it is on new sales? Does the sales culture center around finance?

Sales culture is important because it determines how the sales organization is spending its time, and whether or not they are driving growth for the company. If the sales culture does not match the objectives of the company, it may be time for a cultural overhaul.

Consider a technology company we worked with recently. Over time this company had lost a grip on its sales culture. In the mean time, their market became increasingly competitive and — to stay in the game — the company realized it needed to differentiate its products. They wanted to sell solutions, become more proactive in battling competitors, steal some of their competitors’ share and win new customers.

At the time, they had a sales force that was basically a customer service organization — a highly-tenured, service-oriented organization. They wouldn’t take people out. Low performers were permitted to live in the organization for long periods of time. But eventually, this company reached a point where it had to re-orient its sales culture to survive. They had to ask hard questions about their own tolerance for change and their ability to move aggressively.

They asked, “How do we re-orient the sales organization around sales performance?” The answer is not to simply make a change to one lever — like the sales compensation plan — with the hopes that will change the whole culture.

To create a more sales-oriented culture, we led the company through an examination of the following disciplines:

  1. Sales roles. Consider the sales roles in the company. Do we have positions that are true selling positions, or are they designed to be selling and operations, or selling and service? Do we have clean roles?
  2. Execution of those sales roles. We may have well-defined sales roles, but are they contaminated with other types of operations or services? Are we implementing the role correctly? Remove the non-selling activities to allow the sales people to have a true sales focus.
  3. Talent. Once we define the sales job and remove the non-selling activities and decontaminate the job, sometimes we find the inventory of talent isn’t right. We don’t have true sellers; we have service or operations people. Is our talent trainable to be re-oriented into sales roles? When they stop performing all the service areas on their account and we raise their quota and we ask them to go out and book more business, can they do that? Do they have the talent, or do we have to reconsider our talent inventory and go out in the market and acquire new talent that is really sales?
  4. Compensation. The compensation plan can drive a more sales-oriented culture. Do we have the right value proposition? Is our pay plan competitive enough in the market to attract the people we want to attract? Is it competitive enough to retain people in true sales roles? Where once we could have kept a more service-oriented seller in a lower performing sales comp plan, now we have to redesign the comp plan to attract the talent we want.

There are also several questions within sales compensation to ask:

  1. Employee value propositions.  The sales role, career path, work content and affiliation with the company are all components that can make the job attractive to someone. With compensation, also consider the types of performance measures we’re using in the plan, whether they are measures that align with sales results or measures that promote service activities. For example, is the comp plan individually oriented around performance, or is it oriented at the company level or “big team level” that doesn’t drive sales as much?
  2. Pay-out curve. Do we have a philosophy that significantly rewards top performers and doesn’t over-pay bottom performers? We want to have a plan that won’t allow underperformers to survive in the company for a long period and a plan that is attractive for those at quota or above.

The result of this process was the technology company was able to pull out of its declining revenue trends and move into a double digit growth trend. But considerable change was required in the organization to do that. They developed hunter and farmer roles and changed the payout plan to reward high performers and drop low performers. They had turnover, and they acknowledged they needed to, even though they had been operating in the opposite way for years.

Moving to a sales-oriented culture means asking, “What are you prepared to change? What are you prepared to do? What is the management’s appetite for change? What is the organization’s appetite for change?” Changing the sales culture can mean you are going to literally turn over certain parts of the organization that don’t align with the culture and bring in new talent.

It’s kind of like a high fat diet. You can live on a high fat diet — or a non sales-oriented culture — for many years. But in the end that high fat diet could end up killing you. It builds over time. Lack of a sales culture will make you less competitive and hinder your ability to attract top talent. You will end up with a B and C-level sales organization, with B and C-level players versus A-level players. Eventually, that can spell the demise of your organization.

Cultures, left unchecked, change within organizations over time. Do you want to be in control of the change or a victim of the change?

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For more information from Mark Donnolo on sales compensation culture, contact SalesGlobe at 770 337 9897 or email Mark at mark.donnolo@salesglobe.com.

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