Communicating the New Sales Comp Plan: Key Steps Part 3

Communications Points

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

See the Organization’s View

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

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

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

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

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

 

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

Ten Success Factors for Better Quotas: Part 2

Quota Risks

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

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

  1. Move Beyond History

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

  1. Balance Market Opportunity with Sales Capacity

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

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

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

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

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

  1. Fit the Methodology to the Account Type

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

  1. Make Your Approach Scalable

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

  1. Don’t Over, Over-Allocate

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

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

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

 

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

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. 

 

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

Training Without Coaching

A WSJ article once cited that, “With some studies suggesting that just 10% to 40% of training is ever used on the job, it is clear that a big chunk of the tens of billions of dollars organizations spend annually on staff development is going down the drain.”

Picture2Part of the problem – and, of course, the solution – lies in coaching.

When calculating the ROI of training, consider:

  • 25% of ROI comes from what you do before the event (the actual training).
  • 25% of ROI comes from the event itself.
  • 50% comes from activity after the event (coaching).

That’s half of the ROI, yet too few companies follow through with coaching. In a Sisyphean-like endeavor, sales organizations send folks through training, expect them to return transformed, and then watch as the organization inevitably returns to its old pre-training ways.

Not surprisingly, many companies (44%, according to a recent SalesGlobe survey) aren’t clear on the benefits of coaching and don’t measure the effectiveness of their sales coaching programs. Of those who do measure the effectiveness of coaching, the top benefits they see from their coaching programs are:

  • an increase in sales productivity per rep;
  • an increase in close rates;
  • an increase in their ability to cross sell or sell complex solutions or complex products;
  • an increase in revenue or profits.

In terms of ROI, about half of companies (48%) report 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.

So what’s your view on coaching? Necessary, unnecessary, or truly worthwhile?

Read an excerpt from our new book, “What Your CEO Needs to Know About Sales Compensation.” Or, to learn more, visit us at SalesGlobe.

Your Revenue Roadmap: Driving Your Sales Strategy with Compensation

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

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

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

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

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

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

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

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

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

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

Aligning to the Strategy

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

What’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.

Time for Coaching Sales

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

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

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

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

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

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

 

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

2013: Questions for a Lucky Year

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

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

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

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

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

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

To learn more, visit us at SalesGlobe.

To Cap or Not To Cap?

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

This is a surefire way for some lively conversation.

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

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

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

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

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

What’s your position in this spirited debate?

To learn more, please visit us at SalesGlobe.

Bus Accidents & Sales Comp: Thresholds

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

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

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

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

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

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

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

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

To learn more, visit us at SalesGlobe.

 

Making More than the Boss: Sales Incentive Pay

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

 

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

 

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

 

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

 

To learn more, visit us at SalesGlobe.

Sales Comp & Merry Men in Tights

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

 

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

 

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

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

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

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

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

Sales Comp & Big Money

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

 

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

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

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

 

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

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

 

 

To learn more, please visit SalesGlobe.

2012 Staffing Industry Sales Force Compensation Survey

 

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

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

Please use the link below to access the survey:

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

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

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

Participants and Report

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

The data you will need to complete this survey includes:

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

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

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

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

Thank you for your participation!

 

 

 

CEOs and Incentive Compensation – Partners or Strangers?

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

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

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

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

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

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

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

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

Sales Roles and Productivity II: Data-Driven Boosts

Information technology and business are becoming inextricably interwoven. I don’t think anybody can talk meaningfully about one without the talking about the other. — Bill Gates

So what drives productivity in your organization? Is it a matter of management making the sales process easy for the reps? Is it about financial incentives?

We recently worked with an office supply company that tried the information-based approach. Knowledge is power, and while too much data can be overwhelming, especially if it’s unorganized or seemingly irrelevant, specific, pertinent information can increase efficiency. Or so the theory goes.

This company decided to look at customer composition and tried to understand what each customer would buy by product category. Then, they looked at how far that customer had been penetrated by certain product and service segments. The idea was to focus the sales organization on the clear paths of penetration.  

They were able to capture all of the data relative to what the customer was consuming. They were able to see the product details for each customer bought in the paper category, they bought in print/copy category, and in furniture. “Then the game is to maintain the spend, improve it, and get them to spend in categories that they haven’t spent in before,” said the former executive vice president for the business solutions division.

“The overall approach l was to look at the customer and map out their remaining potential. And for those who are pretty well penetrated, assign them to a different sales resource. You have to make sure your data is kept fresh; it’s a reflection of where your customer is today, not where they were three years ago, because things change quickly,” she said.

How do you use information to increase productivity in your sales organization?

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

Sales Roles and Productivity I: Follow Me

 

Let’s acknowledge that different sales roles have different definitions of productivity. For example; the transactional sales rep selling local advertising with a quota of two sales per week will have a very different schedule than a long-term consultative sales rep selling an expensive piece of technology.

Different types of sellers, different characteristics to their productivity. Demanding a rep with a sales cycle of two years to close deals more quickly probably won’t result in more sales. More likely, it will annoy the potential customers and send your rep looking for another job.

So how can you define productivity in your organization and differentiate it between sales roles?

We worked with a company that recently made a change to build more of an account management focused organization because so many of their people concentrated on just hunting.

But they were in a new market, and both management and the reps were a little disoriented. So, in order to help the reps, the managers temporarily took over the selling. They broke the market, did the major hunting, and passed it along to the reps for account management.

“We said, ‘We’ll go find the customers, we’ll develop the pattern, how they buy, what the customer looks like, persona, cycle,’ everything,” said the vice president of marketing for the company. “And we’ll train the salesman. We will get the first order, we’ll teach you how to do the second order, and then you’re on your own for the third order.”

“We built a war room down on the first floor and started going through this whole process of building this together. The reps wanted to know what we were doing in there, and we said, ‘You focus on the day job. Don’t try to create this new market. Because then, you’ll lose focus, you won’t make quota, and we will go broke as a company.’

“So, we said, ‘We’ll teach you how to do this and add it to your portfolio.’

“There were questions like, ‘Will I lose quota? Will you take business from me?’ So, we had to work through all of those territorial things that we as sales people like to hold on to.”

It was an interesting concept. This company, a major technology company, didn’t put the salesperson out and say, “Go develop the business in this particular area.” They prepared it for them. They went through the process with them, and then repeated it, and let them catch on that way.

“We knew that the first time we were going to get our nose bloodied. We had to understand how the deal happened,” he said. “There were things we didn’t understand when we got started. Our sales guys got chewed up. We figured out what the pattern was, and learned that we had to develop it, and then hand it off to that organization.”

How well would a practice like that work in your organization?

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

Using Customer Insight to Become More Productive

 

We all want to please our customers. But how many of us regularly ask them exactly what they want, versus assuming we know how to please them and proceed about our merry way?

Several years ago SalesGlobe hosted a panel discussion about selling to strategic accounts, and one panelist, who had sold to a major grocery chain for years, recalled the impact of hearing the following sentence:

“You know Tom, it’s great when you sell to us how you want to sell to us. But it’s even better when you sell to us how we want to buy.”

 Simple, yet transformative.

How do you evaluate customers and understand what they are looking for? The goal is to use customer information to become a more productive sales organization. How do you look at the market and where it’s headed for competitors? Are there ways of getting insider information that can improve business results, either in terms of the metrics we’re looking at or what we’re hearing back from customers?

Of course, the more we can partner with our customers the more we can drive productivity together. Partnerships and productivity gains are interwoven. At every front, to listen to the customer – logistics, processing, procurement, billing. Partnering in any way possible to create solutions together will improve our productivity and continue to provide great service. Opening up the entire organization from every functional expert to become more efficient for your customer will help you be successful together.

A client we worked with recently held a partner conference to better understand the needs of their customers. They gathered the CIOs of their top 13 customers into one city for two days. The goal was to listen to their customers and understand not only what the sales people are hearing the market, but why they’re hearing it.

Many companies get voice of the customer in pieces and parts, but we have to amass that information. Once amassed, analyze it for patterns and movements in terms of what we’re missing relative to customer expectations. Why are we losing deals and why are we winning deals?

What practical methods have you found for gathering customer insight and using it to drive productivity?

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

Managing a Multi-Generational Sales Force

For the first time in US history, four generations are working side by side, representing a 50-year age and experience span. On the upside, companies benefit from the range of experience and unique views those decades provide. On the downside, each generation has varying cultural and motivational expectations driving their work ethic and behavior.

You might find some of these defining characteristics in your sales organization:

  • The Traditionalist (born between 1927 and 1945). Punctual and conservative, he survived the Great Depression and a world war and believes hard work is its own reward.
  • The Baby Boomer (born between 1946 and 1964). Well-established, loyal and work-centric, he values face time in the office rather than work/life balance.
  • The Generation X-er (born between 1965 and early 1980s). Witnessed the burnout of his parents; hardworking and ambitious, he prefers to set his own hours and values freedom, autonomy, and family time.
  • The Generation Y-er (born in 1980 or later). Smart, creative, optimistic and tech-savvy, she is a multi-tasker who prefers technology over face-to-face interactions. Don’t waste her time making her come to your office.

The challenge is, of course, to aligning these generations toward a common sales goal; and  motivating and retaining talent in each of the generational groups to give your company a talent and performance edge. 

It’s important to start with some insight:

  • Understand who’s in your sales organization.
  • Recognize the factors that matter most when managing the generations.
  • Prevent traditionalist, authoritative management from wreaking havoc on Gen Y achievements.
  • Enable each generation in a larger sales strategy context.
  • Recruit and retain the talent that you need.
  • Set expectations and create effective incentives for each generation.
  • Understand how coaching and development can help the generations to work together.

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. 

 

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

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

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

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

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

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

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

Key Considerations

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

Components

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

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

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

Mark Donnolo is managing partner of SalesGlobe.

 

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

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

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

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

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

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

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

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

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

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

SGF Member: Do they have to earn it back?

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

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

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

 

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

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

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

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

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

 

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

Gauging Greatness: Which Performance Measures are Worth Tracking?

 

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

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

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

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

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

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

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

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

What are the best performance measures you’ve used?

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

The Next Generation of Comp

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

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

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

 

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

 

Which would you rather have?

 

Read the full story here.

 

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

 

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.

Moving the Mighty Middle

Take a look at the quota results in your organization. Chances are you have a handful of reps that knock their quotas out of the park. You probably have another handful of people that can never seem to reach it.

But by and large, I bet the largest group hovers just below quota – making 80%-99% instead.  Close, so close, but they’re not making it.

While many organizations invest their effort in developing the high performers, there are huge gains to be made by improving the performance of the mighty middle of the organization. Moving them even a few incremental percentage points can have a larger impact on the results of the business than even a dramatic percentage gain from the high performers.

Short-term performance targets and a look at the motivators in the plan can be used to coax this group 5% closer to quota attainment, and that can deliver a much-needed impact on your business. For example, a high tech company we worked with recently realized it was actually de-motivating its reps for selling one-time deals if they were below 90% of quota. The reward was too small compared to the effort. In addition, the rep would essentially be punished the following year with a higher quota. It was better for the rep to wait until the new year to close the sale. It was a lost opportunity for the business and the rep. Simple changes in mechanics and policies made these opportunities much more attractive for the mighty middle and aligned their motivations more closely with the company’s goals.

Many companies find it difficult to separate high performance from high potential, and tend to over-focus on what they perceive to be their top performers.

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

The Deal You Can’t Afford to Lose

Maybe your rep just got lucky. She landed an appointment with the CEO of one of your major customers. She had what it takes to get in the door. Now does she have what it takes to close the deal?

Positioning at the C-level in your customer can get your business the visibility and consideration you might not otherwise get. It can differentiate you enough to land the deal you can’t afford to lose while your competitors are scrapping at the middle management level or better yet, negotiating with the procurement department. Develop a sales strategy that aligns to these senior level buyers, which includes understanding what their business issues are and the type of value and messages we need to communicate to capture their attention. One of the biggest complaints CEOs cite is that sellers don’t understand the customer’s business and, more specifically, don’t understand what’s really on the CEO’s mind. Provide meaningful input that addresses how the CEO looks at the business. Talking about product features and benefits to a C-level buyer usually misses the mark. Understanding the concerns of that C-level buyer and where they intersect your offering is a key to successfully navigating the C-suite.

Your organization must also be structured and designed effectively for C-suite selling. Specific sales roles such as major account management, supplemented by experts in the company’s products and applications can combine to provide a business oriented solution with the depth to deliver.

Look at your current inventory of talent and how their capabilities match up to working at the senior level of the customer.

  • Do they have the executive presence to roam the thick carpets of the C-suite?
  • Can they think like the C-level buyer and understand what’s important, or are they simply focused on offering your company’s products?
  • Do they have the creative capability to take your company’s products and meld them with an offering that matches needs of the C-suite?

Some critical points to know about C-suite selling:

1. The referral your account manager received to the senior buyer is perishable. It literally lasts minutes into the first sales call. He or she must be able to convert that reference to credibility very quickly.

2. C-suite buyers need to recognize that your seller knows what’s important to them; your seller understands their business; your seller can develop solutions that will address their needs; and your seller will be effective and efficient with their time, which is a valuable commodity.

3. While relationships matter, they have to be robust, not shallow. More contact time doesn’t necessary mean a better relationship with a CEO. Less contact time and higher impact equals a higher value relationship.

Once you’ve established the relationship and proven to be a valuable partner, the C-level relationship, well-cultivated, can provide an ongoing advantage in your major customers.

 

To learn more, visit SalesGlobe or email Mark Donnolo at 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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