Communicating the New Sales Comp Plan: Key Steps Part I

Communications Points

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

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

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

The Sales Compensation Diamond Part 2: Linking Pay and Performance

Sales Comp Diamond

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

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

  1. Develop Measures and Priorities

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

  1. Set Levels and Timing

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

  1. Design Mechanics

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

  1. Align the Team

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

  1. Set Objectives and Quotas

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

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

 

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

 

C-Level Involvement in the Sales Compensation Process

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

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

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

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

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

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

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

The Sales Comp Report Card

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

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

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

 

 

1. C-Level Goals and Sales Roles

2. Framing the Plan

3. Linking Pay and Performance

4. Aligning the Team and Financials

5. Operating for Results

 

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

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

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

 

Best of luck,

Mark

 

 

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

Your Revenue Roadmap: Driving Your Sales Strategy with Compensation

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

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

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

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

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

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

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

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

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

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

Aligning to the Strategy

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

What Your CEO Needs to Know About Sales Comp

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

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

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

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

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

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

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

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

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

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

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

2013: Questions for a Lucky Year

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

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

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

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

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

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

To learn more, visit us at SalesGlobe.

To Cap or Not To Cap?

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

This is a surefire way for some lively conversation.

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

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

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

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

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

What’s your position in this spirited debate?

To learn more, please visit us at SalesGlobe.

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.

CEOs and Incentive Compensation – Partners or Strangers?

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

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

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

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

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

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

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

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

Sales Roles – Is Simplicity Possible?

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

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

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

 

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

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

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

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

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

Sales Roles and Productivity II: Data-Driven Boosts

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

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

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

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

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

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

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

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

Sales Roles and Productivity I: Follow Me

 

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

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

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

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

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

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

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

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

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

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

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

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

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

Every Customer Happy Every Time?

Once upon a time a woman went to work for a new company. As she walked around the halls she noticed posters everywhere that read “Every Customer Happy Every Time.”

 So she went to the CEO. “What’s with all of these posters?” she asked.

 “Aren’t they great?” said the CEO with a proud grin.

 “No,” said the woman. “Every customer is not a good customer. We have to take them down. We have to take them down now.”

 It’s a common misperception. Since we all want more customers, it’s natural to assume all customers are good customers and therefore we should do everything we can to make them happy. But it’s also a way to dig yourself into a losing situation.

 One way to prevent a relationship with a losing customer through targeting or segmentation.

 Targeting customers is a practical way to look at customers differently, and can help us to concentrate in some better places.  If we’re going to line our resources up in a place, how do you know where to put them?  It’s about understanding a new market and finding the right customers in that market.  The product or service you are offering is the same, but the customer’s needs might be different. Understand what that customer’s business problem is, how they’re thinking about the problem and how you can address it. 

Do you agree or disagree that “Every Customer Every Time” is a bad idea?

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

Part III: Aligning Comp with Sales Roles

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Read Part I here and Part II here.

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

Part II: Sales Strategy Dimensions

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

 

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

 

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

 

 

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

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

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

The Revenue Roadmap

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

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

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

 

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

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

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

 

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

How to Set Bad Quotas and Destroy Your Comp Plan

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

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

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

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

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

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

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

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

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

 

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.

Sales Comp for Strategic Selling

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

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

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

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

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

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

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

Weighting offers one way of sorting out those strategic priorities.

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

 

Strategically Speaking …

 

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

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

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

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

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

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

3. What products will we offer?

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

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

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

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

It sets the stage for a good structural approach.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

The People and Politics of Sales Compensation

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

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

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

Here are a few of the usual suspects:

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

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

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

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

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

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

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

Who are the people involved in your sales compensation design?

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

 

Strategy and Sales Comp Part I: Making the Connection

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

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

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

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

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

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

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

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

Sales Comp ROI Best Practices

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

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

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

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

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

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

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

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

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

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

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

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