By Clinton Gott and Ted Briggs, BSC Co-Founding Principals
If attempting to read the tea leaves on sales force turnover trends, one will find a muddled picture. On one hand, recent government statistics indicate jobless claims are near their lowest levels since 1973, with the overall unemployment rate around 5%. We recently ran our 2015 Sales Force Retention Survey, co-sponsored by OpenSymmetry and Xactly. Sixty-eight leading companies participated, and 70% reported turnover rates below 15%, which is generally below historical levels. To reinforce these mixed messages, only half of respondents expected turnover rates to increase in the next 12 months, while half did not. So does sales force turnover really matter right now?
Impacts of Turnover
One clear picture did come out of our study – the implications of sales force turnover are significant. 75% agreed with the statement “sales force retention is a high concern to my organization,” while 72% stated that sales force turnover is “detrimental to our business.” To quantify the costs of turnover, a number of studies estimate the direct costs and reduced new hire performance equate to the departing salesperson’s Target Total Compensation level, if not greater.
There is a clear connection between sales force turnover and significant business disruption. Looking at our survey again, the following choices received answers of “somewhat significant,” “significant” or “very significant”:
- Reduced productivity due to new hire ramp-up time – 88%
- Poor results from open territories – 79%
- Decreased sales force morale – 69%
- Exiting salespeople poaching colleagues – 47%
- Exiting salespeople poaching customers – 47%.
How long do territories underperform? Our study found the median time required to “hire a qualified candidate” was a somewhat brisk 1-3 months, and the median time required for a “new hire to become fully productive” was 4-6 months. That implies a territory could be sub-optimally producing for up to 9 months. In complex sales environments, we found full productivity constrained for 18 to 24 months.
So whether turnover is at or below typical levels, and whether a wave of turnover is beginning to crest or not, prudent organizations are taking steps now to address this topic. So what can be done?
Turnover Counter Move 1 – “They are Called Best Practices for a Reason”
Sales compensation of course plays a role in combating turnover, and you should start by ensuring your plans align well to best practices. Compensation is often cited as a primary driver of turnover, and that’s enhanced when an organization’s plans don’t measure up. BSC has a list and worksheet of “Fifty Better Sales Compensation Practices” that we encourage companies measure themselves against, and we can highlight some of the most pertinent concepts here.
Risk and Reward
The role’s base/incentive pay mix should match the role’s sales prominence and impact on results. Gone (or almost gone) are the days of 100% absolute commission plans; the vast majority of sellers have a base pay component. But the base to variable ratio needs the right balance, with some stability on the downside and a meaningful target incentive amount to magnify on the upside. Pay mixes usually range from 50/50 to 80/20, and you’ll want to make sure your pay mix fits each unique sales role.
Turnover concerns should logically focus most on your top performers, the ones who exceed goal. And those best reps want to be well-rewarded for beating expectations which is delivered through upside opportunity, typically with appropriate acceleration rates above goal. In most direct sales positions, we want to see the highest performing reps doubling or tripling target incentive. In our retention study, 24% of companies indicated they do not use any accelerators, which should be an immediate red flag to anyone reading this! For those who do offer acceleration, it may be time to double-check your rates and consider offering greater upside.
Sales compensation plans should not require advanced mathematical degrees to understand or calculate. For example, if we find a plan document with seven measures and eight different kinks in the pay line, we’ll likely label that plan as too complex and your reps will label that plan “incomprehensible”. Such plans will not motivate as one hopes or expects, and the compensation dollars may be poorly spent. The best plans usually have no more than three measures, and the mechanics should be simple and sensible. While each case should be uniquely considered, there are rarely meaningful benefits to a plethora of payout rates and an over-engineered pay line above and below goal. Don’t overthink it. Consider a threshold if it makes sense, and identify an enticing and cost-effective acceleration rate. Focus on your most important strategic imperatives, keep the plans simple, and clearly focus the reps to best maximize results.
Salespeople are more than just a cost center or a line item on a financial spreadsheet. They can be masters of their own universe and the key driver of company results. Be fair. Set realistic goals and be leery of excessive quota over-allocation. We jokingly ask sometimes, “What’s the best way to drive productivity?” Answer: “Just increase quota!” [Please insert a “ba da bump!” drumroll here]. Ah, if it was only that simple. Perhaps a better question for that “increase quota” answer would be, “What’s the best way to increase sales force turnover rates?” It’s important to set fair goals, instill hope, and avoid sales reps checking out before the year even starts. If there is internal pressure to over-allocate quota, findings from a recent BSC Quota Study suggest only doing so between the frontline managers and the individual reps, and no more than 5-10%. We want at least 50-60% of reps achieving goal in healthy sales culture, and massive quota hedge can strongly counter that ideal.
Again, there are many best practices to consider, but if a role’s sales compensation plan does not align to the ones that fit your business, or you don’t know how you compare, this should clearly be your first strategy for not only countering turnover but supporting a healthy and high-achieving sales organization.
Turnover Counter Move 2 – “Sweeten the Pot”
In some cases such as highly competitive labor markets or highly sought after sales roles like sales engineers, the core plan may need a little juicing up. In our retention study, 70% of respondents used short-term incentives and 40% used proactive and/or reactive retention bonuses. Retention bonuses can be particularly impactful for key roles or high performers, and are most effective when paid out over time to retain talent for as long as possible. We recommend establishing internal policies for when you may be willing to use these tools, perhaps not in all cases, for all roles, or for all salespeople. But hey, this costs money! Correct. But if an occasional $10K pop keeps a high performer on board and avoids the six-figure cost implications of losing him or her, then the case practically makes itself. As they say, “Penny wise and pound foolish”.
Turnover Counter Move 3 – “There is More to Life than Money”
Money matters. Sales compensation matters. But we increasingly find salespeople are expecting a little (or a lot) more. Additional common tactics used by survey respondents included job promotions (57%) and noncash recognition/perks (48%). Here too, proactively establishing programs or guidelines can be the right approach.
We believe these tactics have particular appeal to Millennials, who this year surpassed Generation X to become the largest share of the American workforce. Studies find Millennials more highly value training and development, flexibility in work hours and time off, mentoring relationships with company leaders, and fostering a greater sense of purpose. There are many creative ways to address these needs, with the goal to improve the employee value proposition and increase a salesperson’s sense of belonging and personal validation.
“The Best Time to Plan for a Catastrophe is Before It Happens”
While few if any of the things we do in our work lives are truly catastrophic, there are definitely challenges to deal with and issues to avoid. Sales force turnover is one of those; it’s wise to ensure your organization takes steps to minimize your risks and exposure.
Our client work suggests sales force concerns are actually increasing, with intimidating consequences to customer relationships, sales force morale and overall business results. The best solution requires a multipronged attack. Start with sales compensation best practices, consider additional investments and address increasing salesperson expectations for non-compensation dimensions. The goal is to increase the connection between the salesperson and the organization through enhancing the employee value proposition. The stakes are clearly high, and the organizations that take steps today will win the retention and sales battles of tomorrow.
About the Authors
Clinton Gott and Ted Briggs are the Co-Founding Principals of Better Sales Comp Consultants. BSC is a management consultant firm dedicated to creating better sales compensation programs and better sales effectiveness solutions. BSC team members average over 19 years of experience and use a senior-driven, flexible, and collaborative consulting model. They believe in solutions that leverage cross industry best practices from high-tech, consumer products, financial services, medical products, logistics, and other industries.