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.

Communicating the New Sales Comp Plan: Key Steps Part 2

Communications Points

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

Craft the Change Story

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

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

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

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

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

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

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

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

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

 

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

Your Sales Compensation Report Card

sales comp report card

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

http://salesglobe.com/report-card

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

 

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

Differentiating Top Performers Part 1: The Reverse Robin Hood

Upside Potential

Let’s look at one of the most exciting components of the sales compensation plan. It’s the part that can support or detract from the desired sales culture, and it lets top performers know whether they can really be significant earners. 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. A top performer is usually a person at the 90th percentile of performance or above.

Typically the upside potential earnings at that 90th percentile point of performance is set as a factor or multiple of pay at risk. Upside potential refers to an earnings point above which the rep can continue to earn. Upside potential doesn’t indicate that there’s a cap on incentive pay.

Upside is defined as a ratio of target incentive. For instance, a plan may have the potential to pay 200 percent of target incentive to a 90th percentile performer. In this case, if target incentive is $50,000 with a 50/50 pay mix, the plan would have upside potential of an additional $50,000, paying 200% of target incentive to the 90th percentile performer. In the same fashion, a plan could also pay 300 percent of target incentive to a top performer. 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.

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 that case, usually the employee seeks a job with a company willing to pay her upside.

Organizations that know how to use the Reverse Robin Hood Principle typically set the pace with the leaders in their industries as one example illustrates with a top performer who recently 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,” says Lucky Young, director of compensation design and operations at Salesforce.com. “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 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. When we asked C-level executives, 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 this earnings level may not be attained every year, that event would not be unheard of in the organization. In fact, C-level executives noted 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.

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. That’s a big challenge for a lot of organizations. This principle makes a statement about philosophy that ultimately affects the sales culture. If the company operates as a meritocracy that emphasizes accountability and applauds performance, then the Reverse Robin Hood principle fulfills the promise of opportunity. If it operates with a collectivist view on balancing rewards, the Reverse Robin Hood Principle can wreak havoc on the culture. That may not be a good thing if the organization likes that collectivist culture. However if its strategy, according to the upstream decisions in the Revenue Roadmap, is to move the roles and talent in a more sales-oriented direction, the Reverse Robin Hood Principle may be just what it needs.

 

 

Next week I’ll write about upside and downside. Contact me at mark.donnolo@salesglobe.com with any questions.

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

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

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

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

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

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

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

 

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

C-Level in Sales Comp– Providing Strategic Direction

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

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

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

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

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

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

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

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

 

 

 

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 Your CEO Needs to Know About Sales Comp

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

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

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

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

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

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

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

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

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

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

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

What’s Your ROI on Coaching?

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

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

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

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

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

 

To learn more, visit us at SalesGlobe.

Coaching Is Important … But When Do I Do That, Again?

So we can all probably agree that coaching and development for the sales organization are important – even vitally important. But there tends to be so much confusion around it.

Last week I wrote that optimally a sales manager should spend 30% to 40% of his or her time coaching her reps. But we all know that rarely happens. In fact, when we mention that optimal amount of time – 30% to 40% for coaching – we get a range of reactions, from puzzled to shocked, as managers think about all of their other responsibilities.

The reality is most sales managers spend less than 20% of their time coaching. That statistic illustrates a gap of about 60% between how much time managers should spend coaching their organizations and how much time they’re actually spending.

So what’s to blame? Many things, probably. For one, the mandate for coaching may not be getting through from executives to managers.

what preventsAnother issue – and one of the biggest challenges we see in both sales management jobs and sales jobs – is the time available to focus on their core responsibilities, whether they are still selling or purely managing.

A full 70% of companies say that sales managers are held back from coaching because they are too busy with aspects of their job that aren’t always related to sales or sales management. Oops. A deeper look reveals that many of these responsibilities are administrative or operational in nature – responsibilities that do not have a direct impact on either revenue growth or the development of the team that produces revenue.

Time constraints can take another form. Forty percent of companies said that sales managers just don’t make the time to effectively coach, meaning they are finding other things to do with their time. Perhaps they are even deliberately avoiding that ominous task.

We know from our research and our work at SalesGlobe that a big part of coaching comes down to the priorities of the organization. About one in seven companies (14%) do not require their sales managers to do any kind of coaching or development. If coaching is not a requirement of the organization, other responsibilities – whether they are selling or administration – will always take the front seat.

Beyond time, the other top barriers are around knowledge and importance. Forty-four percent of companies said managers do not know how to coach effectively. Therefore, even if they are given the time they do not know what to do with that time. Another 19% said they do not have a methodology for managers to use when they have time to coach.

With all the time constraints precluding managers from coaching it’s important to have a program in place. There is a right way and a wrong way to coach reps. (Hint: selling for them is a wrong way.)It’s important to build a coaching program and methodology that fits your organization. Using a standard coaching program – one off the shelf or one being used by another company – is certain to fail. A program that is a good fit for one organization may be a poor fit for your organization. Determine the priorities for your coaching program. Understand from a customer perspective where your weak points are and engage your leadership team in developing the right program for your business.

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.

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.

Doing Away With Quotas

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

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

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

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

Could your sales organization get away with it?

 

To learn more, visit SalesGlobe.

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 – Is Simplicity Possible?

It seems like a simple concept – the role of a sales rep – especially when we apply straightforward labels like “hunter” or “farmer;” or our favorites, “Dobermans,” “Retrievers,” and “Collies” (actually, we go on to include Service Dogs, Pointers, and my personal favorite, the Mutt. That’s a topic for another blog). These labels distinctly describe what the role will do.

But as we all know, humans are complex and tend to defy such pigeonholing. So we go beyond the label and design territories and customer segments. Which methods of clarifying the sales role will increase productivity?

We recently worked with a company who had to take five different sales organizations they had acquired over time and create one functional sales organization. Within that entire sales function there were 35 different job titles. They took several steps to simplify.

 

1. Clarifying the Role. Everybody sort of approaches this a little differently.  This company, a major retailer, began with a certain role, clear responsibilities, and a job title. They made everybody very clear on what their operating objectives were.

2. Matching Products and Customers. Then they made sure each role had the right products for the right customers. There are customers in their business that are very sophisticated, and ones who aren’t at all. At the time, this company was trying to move their organization from a transactional sale – “You can have this for a buck” – to somebody selling conceptually by saying, “This is an annual merchandising program where we are going to sell millions of those bottles of water.” Not just that item for that price.

3. Match Talent to Customers.  Another priority of this company was to increase the quality of their sales organization. You don’t want to put the wrong person with the wrong customer; for example, you certainly don’t want to take a person with a Harvard MBA and assign them to a Mom & Pop store that only wants to deal with item and price. Instead, you’d place that person – most likely a person that has tools, perspective, and strategy – with major retailers, because he or she would create business solutions.

Selling is coming down to solutions. Simplifying the role, where possible, to focus on matching the right customer with the right products and the right talented sales rep – the ones that understand the customer – will create points of difference for your organization.

To learn more, visit SalesGlobe 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. 

Coaching the Coaches

 

Sales training and development can make or break an organization. Whether auditing your existing program or designing something from scratch, it doesn’t have to be hard. We recommend the following five key points:

1. 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.

 

2. Build a coaching program and methodology that fits your organization. Using a standard coaching program – one off the shelf or one being used by another company – is certain to fail. A program that is a good fit for one organization may be a poor fit for your organization. Determine the priorities for your coaching program. Understand from a customer perspective where your weak points are and engage your leadership team in developing the right program for your business.

 3.      Decontaminate your management roles and your sales roles. One of the greatest robbers of coaching effectiveness is lack of time. Define the top three to four critical roles for your sales managers. Make coaching one of those critical roles and determine the amount of time managers should spend on coaching. Identify any other roles – good or bad – that managers play or tasks that managers conduct and perform a value-added analysis on those tasks. For low value tasks for the manager, either eliminate those tasks or shift them to the right resource to make time available for coaching. Conduct the same type of decontamination process for sales roles to increase their available time to sell. The average organization spends 50% of time selling. Identify your actual performance and set an achievable improvement objective.

 

4.      Lead ongoing deal level coaching with the team to challenge thinking. Take coaching down to the micro level, developing strategies for key customer pursuits. Use the sales pipeline as more than a review tool and leverage it for coaching. This can provide new accountability for pipeline management and challenge thinking around specific deals. It is also effective for collaboration between the sales rep and the sales manager so that coaching has a purpose and an objective: to close the deal.

 

5.      Make the process transparent and measurable, including deal forensics, win/loss analysis, and living account planning. What gets measured gets accomplished. If you are not measuring the effectiveness of your coaching program, you risk missing some significant returns. Key to transparency and measurement are tools that provide customer responsive information to coach with. Deal forensics or win/loss analysis looks at major lost deals from the customer perspective and why we lost them. It helps us identify areas for improvement that can be used for coaching the sales team and making strategy changes in the organization as a whole. Living account planning takes the stagnant account plan off the shelf and assigns a process and goals to working the account plan on a weekly basis. The living account plan can be used by managers as a coaching tool to set objectives, track reps according to attainment of those objectives, and coach them to improve their results.

 

For guidance or help on building your coaching program or coaching your managers and reps to a higher level of sales performance, visit SalesGlobe or email mark.donnolo@salesglobe.com.

It’s Good For You: Coaching and Development

Sales training and development can be a little bit like eating your vegetables. Or exercising. You know it’s the right thing to do, but the excuses are so easy and there’s never enough time.

But as the year kicks off there’s really no better way for sales organizations to achieve goals than through coaching.

It’s a critical role for sales managers. Despite its importance, however, it’s under-practiced in many organizations. Sales managers don’t coach for one of two reasons; they don’t have the time, or they don’t know how to do it. But 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.

Most companies realize how important sales coaching is. In a recent survey conducted by The Sales Leadership Forum, 84% of companies perceive coaching as either “very important” or “one of the most important factors of sales success” for their organizations. But are sales organizations really interested in doing the work? Surprisingly, although sales people often take a cynical view of training, most sales people 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.

If coaching and development are important, what are the benefits? Many of these same companies (44%) aren’t clear on the benefits 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. 

Companies report several challenges in measuring the return on investment in their coaching programs. 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. 

On 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.

How much should a sales manager focus on sales coaching? When we ask managers about how much time they spend on coaching versus other activities in their role, we often get a puzzled look as they think about their range of responsibilities. The fact is spending time on coaching is a challenge for most managers. From the sales executive perspective most leaders (63%) think their sales managers should spend between 30% and 40% of their time on coaching.

But the reality is most sales managers spend less than 20% of their time coaching. That statistic illustrates a gap of about 60% between how much time managers should spend coaching their organizations and how much time they’re actually spending. Such a large disparity may indicate that the message isn’t getting through from executives to managers.

That gap leads to the question of why managers spend so little time actually coaching. One of the biggest challenges we see in both sales management jobs and sales jobs is the time available to focus on their core responsibilities, whether they are selling or sales management. If coaching is a major priority for sales managers, then a premium portion of their time should be dedicated to coaching. That’s not the case. In fact, the top reason companies cite for sales managers not spending more time coaching their teams is they have other management responsibilities that take too much of their time.

A full 70% of companies say that sales managers are held back from coaching because they are too busy with other aspects of their job not always related to sales or sales management. A deeper look reveals that many of these responsibilities are administrative or operational in nature – responsibilities that do not have a direct impact on either revenue growth or development of the team that produces revenue.

 

Forty-seven percent of companies say that managers are not able to coach because other sales responsibilities take too much time. While more productive than administrative or operations activities, this indicates that many sales managers are actually selling rather than coaching. A clearly defined “selling sales manager” job may indeed have both management and selling responsibilities – a hybrid role used occasionally that is typically not as effective as a true sales manager. This allocation of sales manager time begs the question: What is the role of the sales manager? Is it managing or is it selling? High performing sales organizations understand that they gain a greater revenue impact from managers focused on coaching their teams to sell than from sales managers selling directly.

 

Time constraints can take another form. Forty percent of companies said that sales managers just do not make the time to effectively coach, meaning they are finding other things to do with their time. Perhaps they are even deliberately avoiding that ominous task.

 

We know from our research and our work  that a big part of coaching comes down to the priorities of the organization. About one in seven companies (14%) do not require their sales managers to do any kind of coaching or development. If coaching is not a requirement of the organization, other responsibilities – whether they are selling or administration – will always take the front seat.

 

Beyond time, the other top barriers are around knowledge and importance. Forty-four percent of companies said managers do not know how to coach effectively. Therefore, even if they are given the time they do not know what to do with that time. Another 19% said they do not have a methodology for managers to use when they have time to coach.

 

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

Targeting & Segmenting Customers

A former vice president at a major office supply company recently talked to us about targeting and segmenting her customers for the sales organization.

Below is some of her wisdom and advice:

“We tried to help our sales people understand where they could get the best return. It was pretty scientific actually.   We found a way to design potential by customer size, by territory.  Really, it’s sitting down there, and it’s not glamorous.  It’s a lot of sweat equity as you figure out what the territories need to look like and then actually measuring people against that potential.  You get people who say, ‘My potential is not very good.’ Too bad.  You’ve got to get people to understand where you are going. Then they can change and you manage according to potential. 

 

We took a look at the geography, understood the customer that was set within that geography, understood what the buying habits were of the potential customer set within that group and then applied that to territory design. 

 

“It also spoke to organizational design because we had overlay organizations.  Everybody was a generalist and we had to determine what levels of productivity we could see improve with some specialization.  There was a need to get some specialization in the organization – – people who could hunt, people who could farm, education people, government people where buying cycles and purchasing patterns are unique and procurement policies are different. 

 

“But you can take that too far, and I think that’s what happened.  I would caution people to try to step back every once in a while and look at the whole forest, because those trees get in there and get you kind of confused sometimes. Eventually we knew we had gone too far. It happened over time. We got away from a sales operating perspective.  We didn’t keep a focus on ensuring that it remained clean and pure, so we ended up with all of these overlay organizations. People would tell me, ‘This is my sales territory and I’m the business development manager of this territory and, oh by the way, here’s my partner from the education sector, my partner from the government sector, my partner from copy and print, etc.’  There became so many segments that it became diluted. The cost of sales needed to be examined more closely than what it was.”

 

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

Communicating Change to a Sales Team

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

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

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

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

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

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

 

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

Part III: Aligning Comp with Sales Roles

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Read Part I here and Part II here.

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

The Revenue Roadmap

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

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

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

 

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

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

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

 

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

Top Comp Challenges — What’s Yours?

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

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

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

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

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

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

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

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

 

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

Lead Busters: Building a Stronger Sales Funnel Part I

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

Sales people are traditionally quantitative people. Give a rep a new compensation plan and, within five minutes, she’ll tell you how to earn the most with it. However, give a rep a sales funnel and she’ll become fogged by the same optimism that drives her. Most sales people find comfort in a full sales funnel. It looks good to management and creates a personal sense of abundant opportunity. However, funnels bloated with low quality leads can throw off organization sales forecasts, inflate rep quotas, and lead to missed expectations. Poor lead qualification can also rob the organization of valuable sales headcount by misdirecting thousands of hours of sales time a year toward no-win opportunities. To improve lead qualification and enhance sales force effectiveness, high-performing sales organizations use some of these best practices.

Start with rigorous targeting. A quality lead starts with a quality target customer. Since most leads are generated by sales and marketing, this puts the onus on them to select the most attractive customers or potential customers at the outset. The most effective method to select target leads is to translate the organization’s target customer segment definition to clear criteria that sales and marketing can act upon. This includes company characteristics, typical buyer titles, and attractive opportunity types. To test the effectiveness of your targeting, select a good sample of reps and match their target customer and prospect account lists with the company’s target segment definitions. Does the sales organization’s tactical action align with its strategic segment targeting? Do reps self-select their target accounts based on personal preference or comfort level? Targeting prospects that have a poor fit with the company’s objectives dramatically lowers the potential for quality leads.

Map the customer’s buying process. Knowing where the lead is within the customer’s organization can help the rep to improve or write-off the opportunity. It is essential to know the complete buying organization in terms of its decision-making process and criteria. Relationship sellers often rely too heavily on a single close contact to pull through a sale and therefore overrate lead quality. A good place to start is to understand how customers within certain target segments typically make their decisions by mapping the steps, players, criteria and interactions using a number of historic sales processes both won and lost. Consolidate these actual buying process maps and use them to test assumptions on the quality of specific live leads for the same customer segment. Knowing your true position helps you better qualify your opportunities.

 

Read Part II here. To learn more, visit SalesGlobe or email mark.donnolo@salesglobe.com.

Top 5 Ways to Make Culture and Compensation Sync

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

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

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

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

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

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

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

Defenders of the Status Quo: Compensation and Culture II

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

 

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

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

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

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

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

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

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

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

 

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

Compensation and Culture: Subtle — and Strong — Powers

 

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

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

Consider these questions:

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

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

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

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

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

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

 

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

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.

Strategically Speaking …

 

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

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

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

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

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

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

3. What products will we offer?

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

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

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

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

It sets the stage for a good structural approach.

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

The Creative Quotient Part II: Steps for Breaking the Boring Mold

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

The philosophy of “We’ve always done it this way before” is way too popular for its own good, especially when it comes to account planning. The same stale plans, the same stagnant process, probably yield the same results.

What would happen if you injected some real creativity into your sales accounts?

Using innovation wins deals and helps the customer. Over several decades of working in both the sales effectiveness disciplines and creative disciplines with major corporations, we’ve learned that the Creative Quotient drives growth. The idea is to challenge a sales team’s thinking and then leverage their creative and quantitative sides to develop solutions that differentiate the company from competitors.

1. Define customer or sales challenge. Start by defining your specific sales challenge and your objectives for the outcome. A major staffing company we recently worked with (let’s call them Acme Resources) had a large prospective customer, a manufacturer that used a competitor to staff hundreds of light industrial personnel on its assembly lines. The customer’s challenges were that their temporary personnel had high turnover, the company had numerous safety violations, and the business had incurred high costs to continuously replace headcount. Stealing this account from the competitor would be a big win for Acme Resources but the competition was fierce.

2. Determine parameters. Each challenge has parameters for its solution. The most creative solutions come from within some limitations, rather than from complete freedom. For Acme, their parameters were the customer’s cost and resource limitations. For many sales teams, their immediate response would be to find a way to cut costs and price to win the sale – a sure path to a bad solution.

3. Create first generation approaches. With a clear challenge and parameters, we put the initial ideas on the table – the first generation approaches. These are the typical solutions. Acknowledge them, and put them aside. Although one of those ideas could be part of the answer, most will block our thinking. Acme’s team brainstormed its first generation list and cataloged it for future reference.

4. Destroy false assumptions. The next step is to destroy false assumptions. For the Acme team, their environment was full of assumptions, many based on “the way we’ve always done it.” Identify every assumption about how we address the challenge, rate their validity, and remove the ones that don’t hold absolutely true. Then question these true assumptions again as you move ahead.

5. Combine horizontal possibilities. This is where things get exciting. It’s been said that there are no new ideas. While this could be true (or a false assumption), an abundance of innovation today comes from combinations of ideas and applications of existing ideas to new challenges. One of Henry Ford’s innovations, the moving assembly line, was actually the improvement of an existing approach for a new business challenge. In sales, the application of existing technologies for telecommunications and the web has opened a new world of methods for working with customers, from telesales to social media for sales. Draw upon sources such as parallel examples from other businesses and industries, examples from history – even unrelated situations might spark new thinking.

6. Walk away (temporarily). After intense sales process innovation, briefly moving to other business will allow the team’s subconscious to digest this work and generate additional solutions. Ever wonder why your best ideas spontaneously come to mind in the shower?  It’s your subconscious at work, and it will produce the same results with sales process innovation.

7. Develop solutions vertically. With a range of horizontal possibilities developed, the Acme team scored each one and then developed the top three vertically. Vertical development entails going deep and building out the solution. Acme then took its top choices, tested them, and proposed them to the prospective customer. The solutions included new methods for forecasting attendance, gaining feedback from temporary workers, improving the work environment, and enhancing safety processes that would reduce turnover
and costs.

It might seem like a lot of work, but while Acme employed its Creative Quotient process its competitors proposed lower rates in an attempt to “buy the business.” For its hard fought sales process innovation, Acme won the business, and earned a place as a partner who crafted a new solution for the customer rather than a supplier who facilitated a historic problem. Acme applied the Creative Quotient to unleash its sales team’s power.

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. 

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.

Recruiting and Retaining Sales Talent Part II

From SalesGlobe Forum
Held in Dallas on 11/6/09

This is the second in a two-part series. To read Part I click here.

SGF Member: One of the things we struggle with is, unlike someone who sells a product, we sell a service. Attracting the right people who know how to sell a service versus a product is very difficult. So I’d be interested in feedback, and what processes they’ve gone through to find that type of person.

We’re finding difficulty in finding sales people that have that aptitude to sell it. Is that something you can see on the front end? Do you have a process to pick up on a person’s competency to sell a solution, or beyond the product?

SGF Member: We spend a lot on the profiling, but for the most part, you’re still trying to get the right skills and profile for that person to be long-term successful.

SGF Member: A really interesting concept in the business or consulting industry is to take a person who is really an expert in what we do, and based on that, maybe they can sell. They are a consultant, they start as a specialist or a practitioner. Because they can’t sell consulting unless they really know how to do it.

But the dilemma is interesting. Your grow people up and you say, “Ok, now you’re a partner. You’ve got to sell it.” And suddenly he can’t sell. You’re moving people from expert to seller. And here we’re talking about: how do we take an expert and make them a seller?

SGF Member: See, for us the challenge is to find someone who is operational on the client side, who is part farmer and part hunter. Pretty simple. We do it the exact same way. They understand the breadth of it, and then you maybe help form the growth from a client relationship side.

And then, on the sales side, they’re purely hunters. Their job is to go in, understand the unmet needs of the clients, and see if there’s something our organization can do for them. Then convince them at a very senior level to do that, and then be willing to divorce themselves from it, with no emotional tie: “Charles, it’s nice doing business with you. I’m going to hook you up to Simon. He’s your client relationship manager, he’ll love you. See you later.”  So that I can focus on sales.

The challenge is finding that individual. We’ve done a great job at integration, handing it off so it’s seamless, and the client really feels engaged. What we struggle with is finding that person to do the job Simon would do. I’m not going to say it’s an easier job, to find those types of people that go out and have the grit to sell a service.

I’m wondering how others have dealt with that themselves.

SGF Member: The one thing that’s difficult is you’re not hiring entry-level sales people in that kind of job. You can have a fine track record of success in selling services: you just have to tell them what’s unique about your services versus what they’ve sold in the past. I also think you can’t hire them en mass. This is where search firms and networking come in, to hire them one at a time.

But I think you have to look at a track record of success at selling services. I don’t think you can take a product person and make him a service sales person.

SGF Member: I would agree. At my company I didn’t know anyone who made the transition from applications to the services side. We did have some people who came from the services side who made the transition to the applications side, but they had the credibility to back them up.

SGF Member: So what I’ve done is, I take a look at the most successful profile. And my business developer officer and I try to match that up. It’s difficult. You need a combination of skills. The ones that are very successful have to have the credibility, so they have to have the knowledge, the terminology, the experience.

SGF Member: We have a very solid team today, 94 people. But finding those people, you make a lot of missteps. You use a lot of recruiting firms. It’s been a challenge. So we’re very patient in the process.

SGF Member: Is there any other process? Any other way to adapt or to speed up the process? Are you able to test drive them?

SGF Member: Well not necessarily test drive them, but we talked about psychology – people, psychology and the process really then allows you to test all three of those before you ever make that hiring decision. In a 30-60 minute interview you really can’t take that much away. You really want to spend three to four hours getting these guys together and see what they would do, long term.

You can take a page from consulting – running through the pieces of what you’d want them to do. Or put them in a job, and see them in action. That’s one of the things with sales people is, they’re sales people. They’re really good in a short period of time. They’re really convincing. You get them and really see how they are in time.

This is the hardest. I got fooled many times.

SGF Member: I am a big fan of case interviews. I like to hear cases of them on a job because that’s how you really hear things. Give them a period of time. See how they deal with situations selling to you what you need. When we used to hire applications sales folks, we used to have a 95 percent success rate.

SGF Member: Is it unchartered that you can do that?

SGF Member: Nobody in our space approaches businesses like we do. So that’s great. We like that. We like unchartered. But it’s strange. We worked with a couple headhunters, and when you look at these people, at their credentials – they’re awesome. So I went before anyone else met them, and I asked a couple questions. And they said they were really good in this particular space. I don’t want a box.

So you get people who –  maybe you run into this –  if they were acceptable in their environments, they would die in another environment.

SGF Member: So are you having trouble finding the right candidates, or are the ones you’re finding not performing?

SGF Member: Well form follows function on that. I’m through with the other piece of that. It costs a lot of money to bring people on, it costs a lot of money to train them, it costs a lot of money for that entire process. If they don’t develop to the level of some of your expectations…

I’ve hired some great candidates, but the company hasn’t put them in the right position. Classic sales guy here, but guess what the company spend $5 million last year and they’re not going to buy anything for the next two years. We’ve got a great guy on the account – he’s a great guy. He didn’t suddenly forget how to sell. So you’ve got those issues.

SGF Member: So I’m asking, do you have the right candidates, and are you doing the right things for them, putting them in the right position, to be successful?

SGF Member: I want to go back and make sure I answer that properly. I think it’s a little bit of both, but more times than not it is people in the environment that’s nearest or exactly like other environments, and they’re just not having the same level of productivity.

SGF Member: I think I made my errors in that. I got in this trap: I was going out to hire sales people, and that’s what I should have been hiring. It was a large complex sales organization. The sales people didn’t develop relationships with the customer. They were more used to a lot of environments. They weren’t as successful with the longer term, ongoing relationship with the client. And so I brought in a relationship management.

I learned there are more differences there than commonalities. You don’t have to get an account manager for this customer, but it’s another filter. And looking at this candidate, if they have this kind of relationship.

In our organization that kind of relationship guy, that’s how we separate those components. Because if it’s a client you’re already engaged with and doing business with, you just trying to nurture, grow and develop that relationship.

For a client manager, put that person in front of clients that you trust. Ask your clients, “How would you feel about doing business with this person, versus your original contact?”

SGF Member: I like that trusted customer relationship.

SGF Member: I like that idea. Throwing someone new out there?

SGF Member: That doesn’t have to be the customer that guy services.

MARK DONNOLO: Ok, any other points to bring up?

SGF Member: I don’t know if you guys have exposure to this or not, but our company uses the Gallup Poll exclusively, for psychological profiles and things like that, hiring sales people across the business.

When we start a new division we go to Gallup and say, “We want these characteristics for a communications rep.” Or you can probably call Gallup and create a profile, and say, “We want these characteristics profiled.”

For us, that’s the first step: put them through the interview process. But if they don’t score well on the Gallup, they don’t move on. If they do score poorly in some areas, at least we know where. If they have vision, or know how to build a relationship, at least we know where to dig deep.

It was discussed earlier: some of those tools, when we start a new division, it’s very helpful. We know what we want in a sales person and we know the characteristics that need to be there.

SGF Member: So you’re using a good filter then to increase the probability that you’ll have a good candidate.

SGF Member: Yes, for people who work in our business units who are going to have to go in and sit down to talk to Mr. Chairman and CEO of PepsiCo or Walmart or Walgreens.

SGF Member: Can they design a profile for that as well? They can? Excellent.

SGF Member: I’m a big fan of psychological profiling; I’ve taken a half a dozen. And I’ve been impressed. I took this 30 minute test and you nailed me. I mean it was really telling. And it’s good for the candidate as well, just as it’s good for the company. Because it makes sure you get somebody that’s a good fit for them as well.

I spent the last few weeks looking at this thing. And what I liked about this approach as opposed to the Gallup plan is they analyze the top-middle, and they build a profile for your company versus a generic, this is a hunter, farmer, whatever it is. And then the system kicks out a set of interview questions, based on those questionable areas where they don’t fit.

So those people in the remote stores or wherever it is, so that’s actually a good guide. It’s kind of interesting, and seems like it’s taking us to the next level.

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

Recruiting and Retaining Sales Talent

From The SalesGlobe Forum
Held in Atlanta on 11/13/09

MARK DONNOLO: In this current economic climate, it’s a good time to recruit or upgrade your sales talent; to get rid of your bottom performers and actually bring in, ideally, a top ten percent. How you systematize an approach and adjust the compensation for those coming in? The top performers are leaving their company. They’re unhappy, so you have a chance to get them, but there’s a dollar figure hanging over the head.

Has anybody had any luck with a program or a system for that?

SGF Member: That’s a pertinent question for our organization. There’s a lot of available talent, and if you’ve got an attractive environment for winning sales people, true pros, you want to get them. It’s also a time to call underperformers.

We racked our brains because we don’t have the most lucrative compensation package. But we’re post-acquisition, and there’s always an integration budget that’s really nice and flush. And you have to have a good idea of how you’re going to use those dollars. So we’ve considered formalizing this “upgraded talent” and creating a sales bullpen. And, in order to have people come in that are attractive to your business, based on their historical performance and what they’re going to do for you going forward, we have used some integration dollars to formalize this upgraded talent and create a sales bullpen.

And I’m not sure if this is going to be successful or not. It was a great idea, because you’re talking about affording good sales people. So, once we create this bullpen and recruit the best talent, they would be joining the organization to bring new talent and bring the organization to a new level. But they wouldn’t be placed in roles right away. You’d have your own sales team seeing this unfold and probably raise their own performance. So, hold them in a bullpen and try to place them quickly, and use integration dollars to afford good sales people.

SGF Member: Definitely in today’s environment – in the macro economic situation – there’s tremendous talent out there. The talent I see out there is the talent that’s still with companies, not having left, because usually they’re the ones companies are trying to hold on to.

When someone asked, “How do you get rid of the lower ten percent?” I look at it somewhat different. I’ve inherited a highly tenured sales force – people who have been around for a long time. One of the fallacies is trying to look at how their performance has been over the years. The lower ten percent may not be the people who have had the worst results.

The change-out might be needed of people who have consistently hit their numbers. And the reason for that is you’ve got to look at the skills that they have and how they got there. And sometimes the reason they are where they are is they have the right customers. And what they’re bringing in every year, you might want to get double. Look at the existing team. It’s not just about who’s got the numbers and who hasn’t.

But the flip side is: when you’re looking at bringing someone in, the first thing I tell the HR people is, forget about this benchmark data you have. If you go after eight players it’s just like acquiring a company. They’ve got their own profit and loss statement. So first, what are your expectations out of some of the people you’re bringing in? If their compensation expectations are high, then the return you expect from them should be high as well. And when you get top talent like that, they don’t mind when you set the bar high.

SGF Member: For adding top talent to the organization, we look at people within our organization that are top talent. Because if I bring people from outside at income levels that are significantly higher, I put my top talent internally at risk. I’d rather cut more than the lower 10 percent because I think I’ll get more out of the higher performers than I would …

SGF Member: If you look at deals won over last few years – significant deals – and you look at the 80/20 rule, does it follow what you’re saying? That the top performers are bringing in 80 percent of your revenue, not 80 percent of your deals but 80 percent of you revenue?

SGF Member: Yes. And you know those people are your go-to people on everything.

SGF Member: So you’re loving on them more than usual right now because you don’t want them to look around or get discouraged.

SGF Member: That’s right. And to the question you had about the executive team who doesn’t love paying sales people a lot of money. We actually are led by a CEO who came up through sales, but I think some people say, “Well that’s a lot of money to make, I didn’t make that when I …”

But I say, “Well it may be different today.” We are pushing that envelope really hard. I think I’m putting a lot of personal reputation on the line, for that, because I think that is the way to transform our sales organization. The investment in the sales people will be required to change our company. But it’s scary, because you have to pay a lot more than people are used to.

SGF Member: Just yesterday I had a conversation with my CFO, and said this person is way out of line. We got through the conversation and bumped him up $40,000 in total compensation – some salary and some variables. You absolutely have to reinvest in your folks. You have to be continually recruiting your folks.

You made a great point about another company. I spent a lot of time talking to another company before making my decision, and I had an option to potentially join them. They were dangling those $800,000 – $1 million compensation packages in front of me. But they were 2008 figures. So I said, “Show me the 2009 figures,” and that dog’s not hunting in 2009.

So I think from the recruiting standpoint, from your perspective, it’s about, “Where’s the puck going?” A lot of people have had great years, and they are looking at W2 statements for 2009 and asking if they’re at the right place.

Everyone’s asking that. Everyone’s sales compensation is coming down. There is a great opportunity. And everyone’s open. And if there’s a compelling story to where your company is going, and what the upside is – no caps, a big market opportunity – if you’re as good as you say you are, the sky’s the limit. So I think I’ve seen a market that’s extremely receptive.

SGF Member: Just a quick question if you find this in your experience. Your top performers – it doesn’t matter what you pay them, they are workaholics. They’re going to give it all to you no matter what. Why not take care of them and love on them and appreciate them, those top performers. Are you finding that to be true?

SGF Member: I paid our top twice as much this year. Because I paid them for the responsibility that they were shouldering. Like you said, they work so hard, they contribute to every deal, they’re helping sales people in other territories. So I started giving them money. I had sales people that made $200,000 more this year than they did last year. And nobody can believe that. But we’ve had a phenomenal year on the backs of a few.

SGF Member: I have one question about an issue I’m facing in my company.

I have a tenured sales force, and our focus is clearly on business development. I’ve emphasized a key account owner; I want these people to feel they own the account. The challenge I have is focusing on business development and account ownership. A lot of time my sellers are in involved in service delivery and problem resolution. But there needs to be more focus on business development.

I see two questions. One, how do you deal with that with the seller? I’m trying to get that emphasis on new business development and not so much on service delivery. And the other question is, how do you get the other folks in the organization that are responsible for service delivery to step up to the plate and do that? Because right now, it gravitates to the seller.

SGF Member: This is absolutely something I see this time and time again. I’m responsible for service delivery and sales. When I came in I said, “You know what? The services delivery element is as important in terms of the ongoing sales as anything.” So we changed our model to show that. Then, when I look at that, there’s a couple of things:

Whoever is leading the service delivery side, if your sales people are spending that much time on service delivery, you have the wrong person leading the charge. The person has to basically tell the sales guys to get out of the way. It has to be that brutal. Now what you’re going to find, there are going to be sales people who choose not to get out of the way. They’re not the right sales person. I mean, yes, a sales person cannot ignore the fact the customer has an issue, but he’s got to facilitate to get the right people involved, not be the person. Once you’re in that position, you’re always in that position. You can never get out of it. So, it’s a combination of the two. The answer, in my experience, is you have to have the right person leading charge on service delivery end.

SGF Member: We actually have a hard line of demarcation between sales and delivery, and there’s an account manager – really a project manager – who takes over.

And there are hunters and farmers, and they look very different. You will get the deal closed and at the 60 percent sales stage we’re going to introduce the professional services team. We’re going to say, “This guy right here will manage the entire delivery process. Bottom line accountability, here’s his home phone number.” The sales person will delegate that.

Where I’ve seen that not work in my previous career is when there’s not a clear delineation between roles and responsibilities. I’ve seen sales people gravitate towards that. Because cold calling and business development, that’s the harder part of the job. So one piece is structure. And then the second piece is stack ranking – pipelines. And peer pressure from a continuous track record. Stack ranking to me has been one of the best performance management tools in my career.

SGF Member: When you talk about the delineation, how does the customer like that?

SGF Member: Well, I’m 45 days into it. One of my observations is that we break a relationship a little, and that’s not ideal there. But the point still remains the same, and that is there is a role in the company that that person is solely responsible for.

SGF Member: I buy into that. Let the hunter be the hunter and cut them loose. It’s always soft. We’ve adopted this thing where the person that takes the account, they go in there, and then the hunter leaves, but doesn’t leave for first six months. We make sure there’s a transition and a time period.

SGF Member: That’s a big key – that relationship and the expectations with the client. But the sales person should be out looking for revenue. You remember the NRGAs – the non revenue-generating activities. You don’t want your hunters involved in those.

The NRGAs is a big topic with us right now, and also they’re hard to do business with. I formalized it. We’ll see how effective it is, but we formalized it as a pinnacle issue. We’ve got sales people doing what we’ve not hired them to do, and we need to stop that. So we’ve got an executive sponsor on the non revenue-generating activities that are contaminating their performance. We’re trying to shift that to someone who’s got the pull in the organization to make it happen, and trying to cut sales people loose.

To learn more about recruiting and retaining top sales talent, visit SalesGlobe or contact Mark Donnolo at mark.donnolo@salesglobe.com.

Target Your Sales Comp Plan for the New Economy

As we approach the new year, most companies are wondering not only how to grow their businesses in the current economy but also how to compensate and retain their sales talent who will help them get there. While we’ve watched corporate revenues and profits drop over the past twelve months, companies have been struggling to make their sales organizations more effective amid a difficult selling environment. One of the big challenges has been keeping the sales organization engaged and selling while they’re earning little for their efforts. In terms of pay, the typical sales compensation plan has approximately 40% to 50% of pay at-risk, meaning reps earn only 50% to 60% of their normal compensation if they don’t reach their minimum performance targets. In a normal year about 60% of the sales population performs at-quota or above, earning target or above target compensation for their results. Over the past twelve months, organizations on average have 42% of their reps at quota or above, leaving the majority of the sales organization under water on pay.

This drop in performance and resulting pay has led to a mad scramble for levers to improve sales productivity, approaches to find other ways to motivate and retain the sales force, and methods to reduce quotas without bankrupting the business. We’ve found that the visionary executives are prevailing, as they see this period as an opportunity to re-calibrate their sales strategies and sales compensation programs. We see some common themes among these visionary leaders as they use their sales compensation programs to keep their organizations motivated.

Keep the Sales Organization Engaged. With reps below the earnings range in their compensation plans, a challenge for some organizations is keeping reps’ heads in the game and focused on the sales process. Some reps and sales managers we talk with have surrendered to the situation and are “waiting the storm out” until the economy improves. This probably isn’t the best approach for driving business in the near-term. Those who are winning the game are finding alternative methods to motivate the organization. For example, often seen as a frivolous perks, reward and recognition programs have become a tool to drive short-term performance despite overall lagging quota performance. As one executive in a major business services company put it, “We can move sales performance ahead incrementally, when reps may otherwise have given up on reaching their overall quotas. Our reps will kill for a t-shirt and recognition in front of their peers.”

Monetary and non-monetary rewards can be used for more specific performance targets, even if the overall growth objective is unattainable by the organization. Using this method, organizations may set goals such as winning the next ten closed deals for a team or booking an incremental million dollars of revenue by the end of the quarter. Non-monetary rewards are a powerful alternative in expense-constrained environments. They offer an intrinsic reward and “bragging rights” that won’t get rolled in to paying the electric bill like a small cash reward might. Most organizations find that non-monetary rewards are motivational and visible to the organization and draw upon reps’ desire to compete and win. These types of rewards can range from quality of life bonuses for the family, like home cleaning or meal services, to recognition visible to the rest of the sales organization such as car leases or car key lotteries that involve a number of potential winners.

Align to the Sales Strategy. At the core of a high-performance sales compensation program are a well-defined sales strategy, sales process, and sales roles. The coverage model refers to the combination sales resources such as field sales, telesales, and partners necessary to pursue the sales strategy. During the recent economic changes, most organizations have shifted their sales strategies to stay on top of customer needs and evolving sales opportunities. These changes may include improvements to the customer message or value proposition around return on investment or alterations in sales roles such as shifts to hunter or new customer acquisition roles.

Each sales role should be defined in terms of its critical success factors, role descriptions, and competencies. Confirm whether you base pay, salary and incentive mix, upside potential, and performance measures aligned with each job’s most important roles or whether these components reflect a job that has changed over time. Determine the correct relationships between these components based on each job’s role in the sales process, sales cycle, account type, product focus, sales strategy, and management responsibility. A fresh look at your sales strategy may reveal some glaring misalignments that can make a big difference in motivation.

Move the Mighty Middle. Take a look at the distribution of quota performance in your organization- the percentage attainment of quota at the rep level. Odds are you’ll see a large group of reps hovering just below quota. 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, meaning those performers between 80% and 99% of quota. Moving the performance of this group 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. Shorter term performance targets and a look at the motivators in the plan can be used to coax this group along the incremental five percentage points of quota attainment that will deliver a much-needed impact on your business. For example, a high tech organization found that it was actually de-motivating its reps for selling one-time deals if they were below 90% of quota. The incremental pay was minimal compared to the effort and the rep would be assigned the annualized value of that quota for next year, making it more desirable to pass on the sale until next year. This was a lost opportunity for the business and the rep. A change in mechanics and associated policies made these opportunities much more attractive for the mighty middle and aligned their motivations more closely with the company.

Over Reward the Top Performers. A successful sales compensation plan should disproportionally reward the top performers. Make sure you’re rewarding the top performers at the expense of the low performers. While this may sound extreme, successful sales compensation plans drive a sales culture by rewarding those who deliver results. In terms of upside potential (the portion of target incentive pay available to your top performers) evaluate whether top reps are earning appropriately more than average performers. Top reps should have an opportunity to earn one to three times the incentive of an average performer. Using precious compensation dollars for performance below a minimum performance threshold depletes financial resources that could be put to better use in the organization and encourages low performers to hang around long after their time. If your most loyal reps are your lowest performers, you’re probably paying too much on the low end of the performance curve. Question whether your low performers paid too much, resulting in a misallocation of funds to non-producers and putting your top talent at risk of competitive poaching.

Know Your Desired ROI and Follow a Proven Process to Get It. Sales executive often question their return on investment in sales compensation. We often hear questions like, “How do I know what I’m getting back from our compensation plan?” or “What should we expect from the comp plan?” The answer to this ROI question lies in articulating the connection between your sales strategy and your sales compensation plan and the influence the plan can have over executing that strategy. Rather than describing ROI simply in terms of compensation expense versus sales results, look at it also in terms of attainment of stated product objectives, market objectives, and sales culture objectives. Key to creating these connections to ROI is following a proven process to evaluate and design the plan. Your sales compensation design process should flow from the strategic decisions around sales roles and the sales strategy to the required design which includes target pay levels, salary and target incentive mix, upside earning potential, performance measures, mechanics, and quotas. Evaluate your plan qualitatively and quantitatively in each of these areas to understand your gaps. Then design and refine the plan using the same components to model your financial returns in a strategic manner.

Examine your plan relative to today’s environment. Keep it motivational to reps and align it with the sales strategy. With shifting customer needs, sales messages, and sales strategies, applying a structured approach to evaluating the performance of your plan and implementing some creative ideas can re-engage reps and better target the plan to the current economy.

 

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

The Trouble with Quotas

You’ve developed your business plan and put the new sales compensation plan in place. You’re almost ready to go except for one thing… setting quotas for the sales organization. Quotas are an often-overlooked critical link between the sales force and your business objectives. Too often organizations spend a lot of time building the plan and the compensation program and then quickly set the quotas to be ready for the next year or the next quarter.

A Bad Quota Can Kill a Great Sales Compensation Plan
Many companies wait until the last moment or simply rely on historic performance or apply a “one size fits all” approach to setting quotas rather than understanding the true growth potential of accounts and the market. The result? Over 30% of companies don’t have their sales quotas ready in the first month of their fiscal year, almost half of companies end up adjusting quotas during the year, and many reps carry an unrealistic load. Why does this happen?

· Quotas Are Often a Last Moment Priority. The organization has invested time, energy, and resources in creating its sales strategy and the new sales compensation plan and has little energy, time, or tolerance left for developing market-based quotas.

· Ownership of the Quota Process May be in the Wrong Hands. Quotas may not be clearly owned in the organization with split accountability from the sales organization, sales operations, or finance. Often the organization that owns the quotas, like finance, is farthest from the market has and the least knowledge about market opportunity and sales organization capability.

· The Organization Lacks the Right Information or a Consistent Methodology. Setting and allocating accurate quotas can be downright confusing and difficult without a logical methodology or information on addressable market opportunity. It’s a lot easier (but in the end more costly) to just evenly spread the goal across the sales force.

Quotas are frequently developed by traditional methods that consider only what the company wants, rather than the true market opportunity and sales force capability. Too often they are assigned after the start of the year (and after reps have worked for a few months on the new sales compensation plan) and then are tinkered with during the year. The results of not developing market-based quotas can include erratically allocated and inequitable goals, missed corporate growth objectives, overpayment and high compensation costs, and a de-motivated sales force that eventually dismisses the strategy and the comp plan.

Instead of overlooking it, companies need to seriously scrutinize their quota system and its ties to compensation and effectiveness. When the field is not selling as forecasted, the reason could lie with quota issues like allocation, goal equity, achievability, performance penalties, adjustments, and perhaps most important, market responsiveness. The problem is sometimes that quotas are being set top-down instead of bottom-up. They reflect what the company wants, rather than what the market will bear.

The challenge is to recognize the cause and effect relationship between quotas and results and develop quotas around market opportunity. Then make sure those quotas complement the compensation plan and are programmed to create sales effectiveness.

What Are We Looking For?
Well-designed quotas should strike the right balance between meeting the company’s objectives and creating a realistic, yet challenging goal for the rep. Pushed too far in the company’s favor, quotas become wishful thinking on the part of the company and unattainable or unrewarding on the part of the sales organization. Pushed too far in the rep’s favor, quotas become walk-over goals and deliver excessive pay and high costs to the company.

If quotas are effectively set and allocated about 60% to 70% of reps should reach quota or above. The overall performance distribution should be fairly symmetrical with about 10% of reps at the excellence or high-performance level and about 90% achieving at least threshold or minimal performance.

A review of your organization’s historic quota attainment will show whether you fall into this range or if your performance is skewed toward low or high performance, or perhaps bi-modal with pockets of extreme under-performance and over-performance.

Sometimes companies simply outstrip their sales organization’s ability to grow with ever increasing expectations without requisite increases in sales productivity. Over the past several years, sales organizations have pushed annual quota increases, on a per-rep basis, 50% to 70% faster than compensation. So reps are required to do more for less, organizations are not attaining the necessary productivity gains from reps, and both groups fall short. From an initial view of organization quota performance, you can delve into further quota forensics to uncover the true drivers of your quota attainment issues. These could be:
· Issues with the quota setting and quota allocation process.
· Issues with the sales compensation program.
· Issues with core sales productivity and consistently improving the capabilities of reps.

Putting Quotas in Context
How do you ensure a tight and well-integrated alignment between all key components of sales performance? Since market factors and business strategy drive sales execution, incentive compensation and quotas, must work within a broader sales management context:

Growth Strategy. Clearly defining the strategy in terms of components that are actionable by the sales channels and the sales organization. These include market targeting, value proposition, tactical strategy, and growth plan by each component of the strategy.

Customer Alignment. Aligning the most effective sales channels to each customer segment, strategy, and sales process component to optimize sales effectiveness and cost effectiveness.
Sales Support. Enabling the sales strategy and coverage plan through incentive programs, quota setting, development, and sales tools.

Evaluation and Interpretation. Gaining a clear understanding of internal performance, market environment, and competitor performance, and taking appropriate actions to stay on-course with the strategy.

To be effective, quota setting and allocation must reflect the organization’s decisions in each of these areas including sales strategy, sales coverage, deployment, and compensation. Too often, the company growth goal is driven by sources that may be unrelated to market opportunity. Objectives may arise from the expectations of analysts and investors, or from business requirements or management objectives. Growth projections are then cascaded down to business units and the field, but the quotas are not grounded in market opportunity. Consequently, quotas are adjusted and re-adjusted during the year.

Traditional Approaches
Traditional approaches to quota setting tend to address design from the company’s perspective.
In a fixed allocation method, flat targets are established for all members of the sales team. This simple process is effective for undifferentiated or open selling environments. It can also work well for start-up companies and for sales teams with similar levels of skills and experience. Unfortunately it does not consider territory potential, nor is it responsive to market opportunity. Consequently fixed allocation can potentially create a bonus for reps in territories with the highest untapped potential or for those with the largest existing accounts.

Historic allocation is another simple, company-focused approach, which can, over time, de-motivate high performing reps. This approach allocates quotas on a pro-rata basis reflecting prior year’s performance. Each quota is ratcheted up by a fixed percentage regardless of market opportunity. Companies just starting up or facing a wide-open market can use this approach effectively. Sales reps in heavily penetrated territories may be penalized when quotas climb out of proportion to market potential.

Account planning is a traditional approach that is highly market-focused although on just a handful of accounts. Account planning incorporates an account by account analysis of individual customers or prospects by focusing on characteristics of opportunity, such as current market position, decision makers, competitors, product opportunities, business issues, action plans, team roles and expected results. Account planning is an effective approach for a small group of large or complex accounts. Companies often reserve this level of scrutiny and planning for top global, national, or major accounts. However, extending this approach to a large number of accounts in each territory becomes unwieldy.

Market-Driven Quotas
Market-driven quotas incorporate elements of account planning but on a broader scale. Often including twenty five or more accounts in a territory, market-based quotas are driven by an estimate of true market opportunity. They meet the principles of quota setting and use bottom-up, account level information to reconcile at the regional, national, or global level. A market-based quota balances relative market share with other differentiating characteristics, such as rep experience, competitive intensity, and market growth rate.

Growth capability identifies an organization’s potential for organic sales growth based on internal strengths in a certain market environment. All the components of the company’s sales model combine to determine and enhance growth capability. The goal is to find the intersection of market opportunity and growth capability.

Market opportunity takes into account elements of sizing, segmentation, and targeting. It starts with an analysis of total market opportunity, considers what is actually accessible given product offerings, existing locations and asset infrastructure and then determines the sales potential in designated markets for target segments. At the same time, elements of sales capability—including resource alignment to target segments, sales workload and duration, hit rates, staffing levels, and sales competencies—are balanced against the market opportunity. The result is a growth objective that is attainable given market factors and sales capability.

5 Principles for Effective Quota Setting
1. Fully allocate the company goal to all sales resources and understand your true cost of sales given multiple crediting, sales overlays, channels, and over-allocations. Typically, the goal should be over-allocated by 3% to 4% to account for variations in individual and business unit performance

2. Ground the quotas in market realities. Know your addressable opportunity for customer retention, penetration, and acquisition. If you cannot incorporate specific account data on sales potential, use reliable forward-looking indicators to modify historic information.

3. Make sure quotas are perceived as fair, equitable, and achievable. If they’re too high, they turn off the sales force. If they’re too low they can turn off profits. Optimally, quotas should provide a challenge but also be within reach given a solid sales plan and sales force capabilities.

4. Consider all factors that affect individual quotas, both external factors, such as market opportunity and rate of market growth as well as internal factors such as rep experience and capabilities.

5. Reflect Rep Input in Quotas. Design systems that are easily communicated and readily understandable by the sales force. A rep will work hard to achieve a difficult quota that she understands but will give up on the same quota if it is not understood.

Capturing Opportunity and Taking the Next Step
In the past, estimating market potential was a guess at best. Companies lacked concrete data about customers, prospects and competitors. Today, however, volumes of information are available from a variety of sources. The richness of market and customer data coupled with improved analytical capabilities and data tools make determining market potential practical. The key is to identify the critical drivers and determine the relationships between them that predict true potential.

For example, a company might determine a customer’s or prospect’s potential through a regression analysis that considers the number of white collar workers, personal computers, and square feet of office space. This would result in a predictive model that could be applied to the universe of customer and prospect accounts territory by territory. Next, the organization might consider factors such as the mix of current and new offerings, the balance between acquiring new accounts, penetrating current customers, and retaining them, and finally the actual capability of the sales organization. Balancing potential with organization capability yields a goal that reflects both market opportunity and the organization’s readiness to capture it.

Amid the details, it is crucial to ensure that the process meets the tests of:
· Receiving adequate time and resources to conduct the process properly.
· Being understood by management and reps- a block box solution won’t work.
· Including management and reps in the process from a bottom-up and top-down perspective.
· Incorporating relevant and accurate information.
· Being evaluated and adjusted to improve performance and accuracy.

Companies that understand the importance of their quota setting and allocation process and strengthen this link to sales performance usually find a new source of sales productivity improvement. Audit your quota process, consider its effect on productivity, and take the first step toward getting extra traction from your sales organization.

 

Questions? Please contact us at www.SalesGlobe.com or mark.donnolo@salesglobe.com.

Copyright © 2014; SalesGlobe

10 Simple Rules for Improving Your Sales Compensation Plan

Mark Donnolo
http://www.salesglobe.com/

It’s the time of year when many companies are deep into executing to their business plans, evaluating performance, and thinking ahead to how they’ll make adjustments, or strategic changes, to the plan for next year. As you conduct your business planning and think about the organization’s growth objectives and sales strategy, attention invariably turns to questions like:

“Is the sales compensation plan really working?”

“Can we drive better performance by making improvements to the plan?”

Now that you’ve established your financial objectives, determined your market and product priorities, and developed your sales coverage model, the sales compensation program becomes a critical link between your goals and sales results. If it’s designed and implemented well, the sales compensation plan can motivate sellers and drive performance to company goals. If overlooked or poorly designed, the comp plan can move the organization in the wrong directions and result in missed objectives at a high cost.

To develop your plan correctly, understand the core issues and look to a set of time-tested sales compensation rules that will guide your way.

“How can we make a change that better supports our goals without disrupting the organization?”

The Top Sales Effectiveness and Sales Compensation Issues
Many sales compensation issues are actually business alignment issues in disguise. As the company grows and evolves, its markets and strategies change, requiring changes in sales strategy, coverage, and compensation. Understanding these issues and their potential meanings can give you some clues on how you might improve the plan and what other adjustments might need to be made to the strategy or sales coverage model.

The following sales effectiveness and sales compensation issues are most common to sales organizations. We’ve included some areas to investigate that can provide ideas on how you might address these issues.

Issues and Areas to Investigate

Developing an Actionable Strategy
Do the sales organization and sales channel partners understand how they should execute to the strategy on a day-to-day basis? Does the sales compensation plan communicate a clear message about our business priorities?

Increasing Sales Productivity
What levers can we pull to increase the capabilities of the sales organization? Are sales jobs too broad, trying to encompass too many different roles? Do sales people spend too much time on non-selling activities? Does the sales compensation plan push sellers in too many different directions?

Solution Selling
Are we selling products to our customers or developing solutions that address their specific business issues? Have we defined what solution selling means in our business and equipped the sales organization with the right tools? Does the sales compensation plan motivate fast cycle selling rather than considered solution development?

Minimizing Channel Conflict
Do our channels and sales resources align in the sales process or do they conflict, lessening our effectiveness? Does the sales compensation plan include measures that motivate these dysfunctional behaviors?

Cross-Selling
Are we evaluating the full breadth of opportunities in customer accounts? Does the sales compensation plan motivate sellers to expand our portfolio of products or services in each account?

Building a Sales Culture
Is the organization growth-oriented or have we created an environment of mediocrity and entitlement? Does the sales compensation plan drive performance or deliver pay for the status quo?

Paying Top Performers the Most
Do we significantly differentiate pay for top performing reps compared to the average rep? Are we overpaying our low performers?

Reducing Complexity of the Compensation Plan
Is the sales compensation plan easy to understand? Do reps know how they earn pay or is the plan muddled with too many measures and complex mechanics?

Setting Effective Quotas
Is the organization reaching its goals overall with 60% to 70% of reps at quota or above? Are quotas set considering market opportunity or are they based on historic performance?

Managing Crediting and Sales Compensation Costs
Do we have clear crediting rules for sales? Are we multiple crediting too many reps and channel partners for each sale and driving up costs?

Ten Simple Rules
Evaluating and designing the sales compensation plan can be a daunting task due to its complexity and the implications on the success or failure of the sales organization. Everyone has an opinion about the sales compensation plan and everyone is an expert. However, moving ahead without a clear understanding of how to evaluate and approach the issues is a recipe for disaster. The costs of taking the process step-by-step, according to a set of time-proven processes and knowledge of cross- industry best-practices, is far less than the cost of missing the company’s sales objectives or losing top sales people.

Use the following rules to guide your way and start by checking your Sales Compensation Report Card, available at http://www.salesglobe.com/.

1. Align Your Plan with the Strategy and Job Roles. At the foundation of a successful sales compensation program are a clearly articulated sales strategy and coverage model. The coverage model refers to the combination sales resources such as field sales, telesales, and partners necessary to pursue the sales strategy. Each sales role should be defined in terms of its critical success factors, role descriptions, and competencies. Are your base pay, draw, and performance measures aligned with each job’s actual role or do pay components reflect a job that has changed over time? The job’s critical success factors should provide direction on target pay, pay mix, and performance measures. Determine the correct relationships between these components based on the top three to five key job priorities for each direct sales, channel management, sales support, service, and management job. These may include role in the sales process, sales cycle, account type, product focus, sales strategy, and management responsibility.

2. Don’t Be a Robin Hood. The pay mix, the portion of base salary to incentive at target performance, should match each job role. Make sure your pay mix isn’t too aggressive for long and complex sales cycles or too shallow for faster acquisition cycles. There are a number of factors that drive pay mix that should be considered including the job’s focus on account management vs. account acquisition, buying process complexity, and length of the sales process. In terms of upside potential (the portion of target incentive pay available to your top performers) evaluate whether top reps are earning appropriately more than average performers. Depending upon industry, market, and job type, reps in the top 10% should have an upside earnings ratio of one to three times the incentive of an average performer. Are low performers paid too much, resulting in a misallocation of funds to non-producers? Check your plan with the “Reverse Robin Hood Principle” and make sure you’re not taking from the top performers to pay the low performers.

3. Focus on the Right Measures. Performance measures represent the top sales priorities of each job. These typically include financial measures, strategic measures, and may include leading indicators of success. Consider whether performance measures directly mirror the sales strategy and each job’s critical roles. Do relationships between measures (weights, links, hurdles, multipliers) represent the organization’s priorities? Does the plan communicate objectives to the employee in the clearest way or is the message complicated by unnecessary elements? Best-in-class plans rarely use more than three primary measures. Few have measures that represent less than 10% of target incentive. Don’t create a plan that allows reps to pick and choose or creates confusion about what’s important to the organization.

4. Develop a Clear Connection Between Pay with Performance. The sales compensation plan, at its core, is a tool to communicate business objectives and reward for the attainment of those objectives. Does your plan pay for revenue, profit, growth, base retention, or other priorities? Does your plan reward for dysfunctional behaviors or gaming? Total pay, total incentive pay, and incentive pay for each plan measure should be tightly linked to the company’s critical measures of success and should clearly communicate how pay is associated with each performance result. If a simple regression analysis shows a pay to performance correlation of less than 0.5 for your most important business measures, then the plan may be off-track.

5. Reward for Teamwork and De-Motivate Conflict. In an environment of complex sales roles and multiple sales channels, it has become increasingly important to ensure the plan promotes congruence among sellers and channels rather than channel conflict. Does the plan motivate direct and indirect channel teaming necessary to execute the sales process or does the plan create conflict between roles? Do team measures incorporate a group on which the employee has significant influence, or are team measures too high level for the employee to control? Test your measures and mechanics to make sure that the plan does not create a recipe for channel conflict on the four major conflict areas of product, sales process, geography, and segment.

6. Check Your Mechanics. Plan mechanics are the inner workings that specify how pay and performance are related across dimensions such as performance and time. Mechanics should be elegantly and simply designed to finalize the plan and ensure that it operates as designed. Determine whether the plan creates a clear line of sight for sales people so they understand how they’re paid and where they should focus. Is the plan hampered by outmoded commission structures or do the mechanics accurately represent performance potential and pay levels for each job and territory? Do you pay as much for maintaining the revenue base as for hunting down new business and are you over paying for recurring customer revenue? Develop plan structures that encourage high performance rather than dampen achievement.

7. Know Your Economics. Plan economics are deceptively simple in concept but a challenge to master in reality. Understanding your compensation cost of sales is the first step. However, your total cost of sales reveals only part of what you’re getting for your money. Look at the components and drivers of your sales and compensation costs. These include cost by strategy (customer retention, customer penetration, new customer selling), cost by product type, cost by customer segment, cost by geography, and cost by job type. The allocation of these costs should mirror your sales strategy and your total cost of sales should fit competitively with your market.

8. Set Equitable Market-Based Quotas. Setting equitable quotas is one of the major challenges sales organizations are dealing with today. Many organizations still fall into the trap of setting quotas based on historic performance, which usually does not represent true opportunity and lowers the overall performance and productivity of the organization. Quotas should be set and allocated to the sales organization in a market-based fashion and account for variations in territory size, sales potential, and growth rate. Quality market data on customer and prospect accounts is now readily accessible and can provide organizations, that know how to use it, with a performance advantage. Do your quotas create “performance penalties” for top performers or support mediocrity? Are your objectives set and allocated in an equitable manner and does the sales organization buy in to their quotas with a process that uses their input? If quotas require future adjustments, are there clear guidelines in place? Is your quota over-allocation from front line to management adequate or excessive?

9. Get Organization Buy-In Before and After You Design the Plan. Getting the right technical answer on the compensation plan is only part of the battle. To ensure success, the organization must be involved or represented during the evaluation, design, and implementation process. Pull in key executives and the opinion leaders in the organization early in the process to develop shared responsibility for plan development and results. A good plan, effectively implemented will produce far better results than a great plan poorly implemented. Many high-performing organizations use a 30, 60, 90 day audit process to check understanding, behaviors, and results from the plan through their sales compensation dashboards. Do you have a process in place to communicate plan changes, link them with the company’s strategy, accurately track performance, evaluate plan effectiveness, and make any necessary course corrections? By conducting regular, periodic evaluations and tune-ups along the way, you can avoid reacting to costly business damage and operate a plan that will successfully drive business results.

Sales Comp Diamond

10. Follow a Proven Evaluation and Design Process. At the first mention of the sales compensation plan, many executives tend to pull out their calculators and start re-working the payout rates and mechanics. Beware of the temptation to jump to the details first because that’s really the end of the process. Start by understanding the organization’s sales strategy and the job’s key roles. Then follow a proven process to evaluate and design the plan. Follow the Sales Compensation Design Process through two passes. First, evaluate the plans qualitatively and quantitatively on each of the components. Then design your plans following the process, which continues with how you implement and manage the plan on an ongoing basis through the year. Getting into an evaluation and design cycle like this will allow you to proactively manage the program each year.

Taking Action- Get Your Sales Comp Report Card
As you get started, identify your organization’s issues in the areas of sales compensation and sales effectiveness and remember that they are usually connected. Then follow the rules during your evaluation and design process. To begin, it’s important to understand the strengths and weaknesses of your sales compensation program. One of the most effective ways to get an initial, objective reading is to use a sales compensation report card that grades each major component of the plan. The report card will provide your organization with direction on where to focus and in what priority. With those objectives at-hand, you’ll be ready to conduct a rigorous evaluation and plan design process and develop a program that will support your business objectives.

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