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.

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From History to Opportunity: Five Quota Setting Methodologies

Quota Methodologies

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

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

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

 

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

Ten Success Factors for Better Quotas: Part 2

Quota Risks

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

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

  1. Move Beyond History

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

  1. Balance Market Opportunity with Sales Capacity

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

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

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

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

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

  1. Fit the Methodology to the Account Type

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

  1. Make Your Approach Scalable

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

  1. Don’t Over, Over-Allocate

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

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

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

 

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

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.

The Three Strategies for Revenue Growth

RPN

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

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

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

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

 

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

 

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

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

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

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

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

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

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

 

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

Training Without Coaching

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

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

When calculating the ROI of training, consider:

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

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

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

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

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

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

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

Your Revenue Roadmap: Driving Your Sales Strategy with Compensation

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

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

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

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

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

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

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

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

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

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

Aligning to the Strategy

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

What 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.

To Cap or Not To Cap?

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

This is a surefire way for some lively conversation.

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

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

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

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

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

What’s your position in this spirited debate?

To learn more, please visit us at SalesGlobe.

Sales Comp & Merry Men in Tights

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

 

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

 

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

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

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

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

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

Sales 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. 

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. 

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. 

Lead Busters Part II

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

Sales pipelines 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.

Sell to the right location. Many sellers find out too late that they’re pursuing a lead from a non-buying location. For companies selling to major accounts with multiple buying points, one key is to correctly identify the roles each location plays in the decision. There are essentially three models that most strategic accounts use to make buying decisions that can be matched against each lead. First, headquarters makes a company-wide buying decision that is mandated to all locations, which suggests that most quality leads will reside at that level. Second, headquarters selects preferred vendors the local locations may use. Under this “hunting license” model, the successful sales organization may find a quality lead at both the headquarters and local levels. Third, headquarters allows local locations to make the full buying decision. In this case, the quality lead will reside with each location. Matching the lead location with the decision model identifies potential dead end leads.

Manage to the metrics. Most sales organizations have a wealth of information on past sales processes that can provide them with metrics to manage leads. Two key statistics, expected value and lead age, can act as effective lead management metrics to churn out low quality funnel fodder. Expected value is the product of the budgeted sale and the probably of the close, which, over a large number of accounts provides an accurate sales estimate. Lead age is the total number of days the lead has existed in the funnel. While these metrics are not new, their value is in using historical data on actual probabilities and actual average days to close by customer segment, to force out low quality leads. As a rule of thumb, leads that are one standard deviation older than the average days-to-close for that segment are subject to automatic review and those that are older than two standard deviations are removed from the funnel and forecast.

Build the business case for better lead management. Organizations that are effective at lead qualification and lead management typically drive the change by understanding the cost of their current practices. Sales leads are typically used as a basis for sales forecasts, especially monthly or quarterly forecast adjustments that are within the timeframe of a typical sales cycle. Poor lead qualification can directly affect company sales forecasts and result in visible gaps that create costly market and investor reactions. Just as costly are the direct SG&A dollars spent on low quality leads. For a typical sales force that spends 50% of its time selling with 10% of that spent on no-win leads, recapturing that low quality lead time through better qualification can add the equivalent of one new rep for every four currently employed. This equates to a 25% increase in sales capacity without adding headcount. This is a compelling case for making a systematic improvement to the organization’s lead management capability.

 

Before After
For each sales person: For the sales organization:
2,000 hours worked per year Recapturing 10% time or 200
hours per year per rep
x 50% selling time (10%
poor leads)
x 4 reps
1,000 hours selling time 800 hours or the equivalent
of one new rep’s sales capacity
800 hours quality leads
200 hours poor leads

 

Make lead busting a team practice. Critically managing leads as an individual seller can be a challenging process. Many companies find it more effective to instill a process of team lead busting in which sales teams share funnels on a regular basis and rigorously question top opportunities using basic qualification metrics. In addition to helping each rep objectively evaluate his funnel, the lead busting process often produces team ideas for moving key opportunities ahead.

Create a systemic process for managing leads throughout the organization and aggressively audit lead flow and lead quality. Making lead management an organization discipline can convert sales funnels and sales forecasts from works of fiction to reliable planning tools. Effective lead management can directly increase forecast accuracy, highlight weak points and redirect sales resource time toward productive high probability opportunities.

 

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.

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. 

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. 

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?

————————————————————

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.

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