Archive for the ‘Sales Effectiveness’ Category

Q4 Crunch Time – How to Create Winning Sales Compensation Plans

Wednesday, September 7th, 2016

By Clinton Gott, Co-Founding Principal

Fourth quarter and the clock’s ticking. The pressure’s on to create and roll out better sales comp plans in early January. It may not be an easy, but the right game plan will ensure a winning outcome. Focus on the following activities and questions, and you’ll earn MVP honors in the effort to drive better sales performance!

Define and Confirm Your Sales Strategy for the New Year

Is your organization introducing new products? Are you targeting particular sectors or account tiers for growth? Do you have a targeted emphasis on penetration, acquisition, or retention? You are likely targeting a range of sales strategies and preparing for an effective plan design effort means understanding what the organization is trying to achieve.

Define and Confirm Your Sales Roles and Responsibilities

To have effective sales compensation plans, you have to have effective sales job definition. If targeting a new product, can your core sales team sell it or will you need product or technical specialists to support the effort? If looking for growth in new accounts, do you have a defined hunter role or will your salespeople need to both hunt and farm? Overall, do you know how each role is supporting your sales strategy, and then how your current incumbents and potential hires slot to those roles? Organizations often want to jump to the details of their sales compensation designs without fully understanding what the sales roles will be asked to do.

Assess the Performance of Your Current Plans

Effective sales compensation plan assessments should include both qualitative input and quantitative analyses. You should seek input from the various leaders in sales, finance, sales operations, and human resources. Systems/IT may have input to share if plan administration, data, and reporting have been hot topics. We also recommend gathering input from the field, either through your sales managers, formal project-based interviews, and/or an online engagement study. Every sales organization has a unique character and various stakeholder personalities involved; understanding how well the plans focus and motivate the salespeople is a critical area for exploration.

As the year winds down, you should also analyze the plan’s performance and test the return on your sales compensation spend. How have people achieved against targets? What does the pay-and-performance relationship look like? Does the plan offer the necessary downside risk and upside opportunity? These analyses and others should combine with the qualitative input to form the story of your sales incentive program’s performance, identify change objectives, and point to areas for potential improvement.

Generate New Plan Ideas and Engage With a Design Team

We recommend pulling together critical and well-informed stakeholders from sales, finance, human resources, and sales operations to define plan needs, consider potential solutions, and eventually make plan recommendations for the new year. This can take the form of a two or three in-depth meetings. For each perceived need, the team should identify solutions from the world of sales compensation best practices and weigh the pros and cons. Ideally, those best practices should come not just from things you’ve done before or how your direct competitors allegedly do things, but you can and should look more broadly to leverage best practices across the many sales organizations and industries that exist.

Consider the options within the context of your unique corporate culture and organizational needs. You should look at the plans specifically for each unique sales role and address appropriate questions. Do you have the right pay levels for the talent needed and does the pay mix create the right risk/reward relationship? Do the plan measures support your sales strategy and can they be effectively measured? Are the plan mechanics simple and motivational? Is there enough upside and acceleration? Are there particular crediting challenges or details to define? How will sales goals be set and communicated? Overall, are your new plans aligned to your compensation philosophies, will the reps understand them, and will they drive each salesperson to achieve optimal performance?

Perform Cost Modeling to Test the Plans

Before taking recommendations all the way to final plans, you should perform scenario-based cost modeling. How will the plans perform and payout in a bad year, an average year, and a good year? How do the costs of the new plan compare to the prior plan at the macro-level and at the individual level? Which particular reps will win or lose, and is this displacement acceptable or does it put you at risk? What does the compensation cost of sales (CCOS) look like under different scenarios and do the economics of the new plan designs make sense? If not, you may need some fine-tuning before moving on to truly final plan designs.

Prepare Communication Materials and Define Your Communication Approach

This is a very important final step but one that often gets overlooked or shortchanged. Be sure to leave enough time for it! Create rollout presentations that communicate the what, why, and how of the new plan designs. What are the new plans? Why are we making changes? Be sure to connect the changes back to sales strategies. How did we make the changes? Be sure to share the process and the involvement of (hopefully) well-respected design team members. Make sure the salespeople know they matter and be sure to focus on how they’ll maximize earnings under the new plans.

Sell them on the plans – do not just communicate them. Be sure to have clear plan documents and even plan calculators to aid in understanding. For the rollout approach, wait until the upcoming year starts so you do not distract them at the end of the current year. Once the year begins, we recommend a business leader or sales leader perform the initial rollout presentation either at an in-person sales conference or via a webinar. Then task the sales managers to hold one-on-one sessions with their salespeople to sell the plan, answer questions, and generally do their job as coaches and motivators. Be sure to provide a path back to human resources or sales operations if a salesperson has additional questions and to help support the sales manager efforts.

Get to It!

Believe it or not, most organizations can perform the above steps over a focused 8 to 10 week process. It takes prioritization and the ability to involve the right people. In some cases, outside expertise can help drive the process or provide the sales compensation insights to help an organization navigate the various decision points along the way. The sales compensation program is an important enabler of your organization’s sales performance. Even though the year-end is fast approaching, there is still time to ensure your sales compensation program is well-positioned to drive your sales success in the upcoming year. Use the right game plan and you’ll knock down the winning shot every time!

How Many Accounts Should Our Salespeople Cover?

Tuesday, May 19th, 2015

By Clinton Gott, Principal

Companies often pose this question, implying that there is a magic answer or all-encompassing industry benchmark that can accurately evaluate whether their salespeople should cover more, fewer, or the same number of accounts. The studies that do exist can provide directional information, but unfortunately, they do not provide much of a meaningful answer for the unique products, coverage opportunities, and coverage needs of a particular sales organization, not to mention the many sales roles that often exist within a sales force. Fortunately, the answer can be generated by following a logical process approach with informed assumptions along the way. The key is combining the coverage needs of your accounts with the available coverage realities of your sales force.

Account Coverage Demands. Not all accounts are created equally, in terms of the time and attention required to optimally sell to them. You should first segment your accounts along logical parameters, such as account size, vertical market, and sales strategy (retention, penetration, or acquisition). The cataloging exercise can be informed with data (current revenue, degree of penetration, total account potential) along with expertise from your sales organization, typically the sales leaders on down to the frontline managers. What’s the intensity of the sales effort required? Does that vary by accounts with some being more high, medium, or low touch? How much time must a sales representative spend on a typical account in an average week, month, or year? How does the time required vary again by those high, medium, or low touch designations? These questions can and should be part of your account planning exercise.

While the answers may not be perfectly clear or defensible, this exercise addresses the right types of questions and re-frames the way companies cover accounts and assign representatives. The question moves from “how much revenue should a salesperson deliver” to “how much can a salesperson deliver, based on the realities of the time required to cover one’s accounts”. The ultimate goal is to ensure each account is given the most optimal amount of coverage that drives the most meaningful results, while ensuring we can supply this coverage in the most cost-effective way possible. For example, if a field salesperson can only cover four particular “high touch” accounts, and the revenue or future sales that result are insufficient to fund that salesperson or the margins the company requires, then those accounts may be better served or supplemented by lower-cost resources. The answer to the right number of accounts begins with an understanding of how much time and attention accounts from various segments require, thus providing the demand side of the coverage equation.

Salesperson Coverage Supply. We next need to understand how much sales time one of our sales representatives has to cover accounts. This is where some of the highest variances may exist from one company to another – the amount of quality sales time available. In some organizations, non-sales time such as administrative tasks, managing internal politics or battles, or simply excessive “windshield time” can minimize the amount of time a salesperson has to provide the coverage hours identified for the targeted accounts. A salesperson with 70-75% of time available to sell (usually considered an industry best practice) compared to one with only 30% of time to sell (a very low percentage indicative of challenging internal demands, poor role design, or poor deployment model) face very different coverage realities and opportunities. Studying, or even just considering, the amount of time your sellers have to actually sell can be an extremely valuable exercise, and the answer represents the supply side of the mathematical framework that addresses the number of accounts a salesperson can cover.


Matching Supply and Demand. With estimates now of the time required to cover accounts along with the available time to do so, you can do the simple mathematical exercise that takes a first pass at how many accounts a salesperson can cover. See the example below:

Estimated time required to cover various accounts:
o   Large Tier – 750 hours per year
o   Medium Tier – 250 hours per year
o   Small Tier – 30 hours per year

Available sales time for a Sales Rep: 75% selling time x 2,000 hours available (representative annual assumption) = 1,500 hours

Potential coverage examples:
o   2 Large accounts (2 times 750 hours = 1,500 hours)
o   6 Medium accounts (6 times 250 hours = 1,500 hours)
o   50 Small accounts (50 times 30 hours = 1,500 hours)

While this is a simplified example, this type of analysis frames the coverage conversation in a more useful light, i.e., the workload required to best cover accounts and drive results. End of day, these estimates may surely need refinement or some iteration, and your sales force deployment decisions should not treat this information as infallible. But this exercise can provide an excellent starting point and a realistic view on how to think about account coverage, and of key importance, help guide the all-important conversations to generate the right answers.

Recent Client Example. One recent client that asked this question was in a business-to-business financial services industry. Their account assignment characteristics varied highly and did not include much rigor around what a salesperson can truly accomplish. In the top tier, they had delineated very clear concepts focusing salespeople on approximately one to four accounts. These numbers derived though from the sum of the current revenue generated by the accounts, i.e., “a large account salesperson needs to deliver X amount of revenue”. This failed to address what revenue could result with the right amount of focus rather than bundling the number of accounts to generate some level of expected revenue. The coverage approach for the medium-sized accounts was even more extreme, with salespeople owning anywhere from 10 to 100 accounts, also assembled to ensure the revenue sum is “enough” to warrant that salesperson’s existence. They felt the the current model lacked the necessary level of refinement, and they asked for guidance to think through the analysis and alternatives.

For the for sales representatives with up to 100 assigned accounts, careful interviewing and CRM analysis identified that they really only focused on 20 or so accounts, and workload analysis indeed confirmed only enough time to adequately cover that number. That meant on average about 80 medium-sized accounts were sitting relatively idle. Yet this same organization had an aggressive, talented, and hungry inside sales team only covering pools of the very smallest accounts. Why not shift a portion of those untouched medium-sized accounts into the inside sales team’s patch, thus making them the crown jewels of that organization? In this case, the company decided that was the right way to re-energize their sales results. Through understanding the required and available workload, the company created the logical business case to break with current convention, rethink the coverage and assignment strategy, and ensure they provided the right amount of time and attention to all of their highest-potential accounts.

Some organizations run studies and claim to offer comparable benchmarks for the right number of accounts to cover, but in reality, this may not be particularly useful or actionable information. Sales models are surprisingly unique and the data will rarely offer an apples-to-apples comparison for any particular company. Account coverage should be more of an internally-focused planning exercise that requires both quantitative data and qualitative sales management expertise to be completed. The foundation should be built on an analysis of the workload supply and demand equations. This effort will not only provide more accurate immediate answers, but it can result in a more enlightened ongoing approach for working through your optimal coverage strategies.

With the proper number of accounts assigned, you can ensure that appropriate productivity expectations, aka “goals” or “quotas”, can be assigned. That can then lead to optimal sales compensation plan designs and outcomes, the kind of plans that direct, motivate, and reward top performance.

It’s Quota Setting Time – Beware of Irrational Exuberance!

Monday, September 22nd, 2014

By Per Torgersen

In our line of work we get to spend a lot of time with salespeople.  We hear the good, the not so good and everything in between.  One of the topics that always seems to fall in the “not so good” column is quotas.  There is never a shortage of strong opinions, but generally, the themes are a sense of unfairness, lack of achievability, and no transparency of the process.

We always like to dig deeper into these issues as in many cases the quotas directly impact the reps’ pay.  In our discussions, many of the salespeople volunteer detailed spreadsheets they have kept regarding their productivity in past years, major wins, number of accounts growing and declining, new products introduced each year – you name it!  The good ones really know their metrics and are not afraid to put forth their arguments against irrational numbers.

Common stories we hear include:

  • Revenue growth has been steady at 3-4% per year the past few years, but suddenly a rep receives a quota for the next year representing 15% or more growth, with no new products being launched, no new customer segments being targeted, and no explanation provided.
  • A “bluebird” sale landed in a particular year, with the expectation for the next year anticipating another one, thus slapping a percentage growth objective on an already likely inflated number.
  • Misalignments between field reps’ quotas and that of management/the company, with the end result that the majority of reps don’t make their quotas but the company hits its overall targets as do many of those in management (leading to the morale killing situation where management and leaders head on incentive trips with the vast majority of salespeople left behind!)

To that last point, in a recent Quota Practices Studies (performed by BSC and the WorldatWork), we found only half of the participants over-allocated quotas and usually no more than 5-10% levels. The over-allocation was generally held to just front line manager to sales rep but not at higher levels in the sales organization.  If you want the Executive Summary, e-mail us at info@bettersalescomp.com.

The implications of these situations are quite predictable:

  • Diminished morale, and salespeople just giving up because they have no confidence they can hit their number.
  • Swings in performance, with reps gaming the system, and looking at their incentive pay over a two year cycle, with a great year followed by a lousy year, which then gives them a lower quota the next year and a good payout again.
  • Diminished incentive payouts, leading to a higher number of salespeople keeping their eyes open for other opportunities and increased turnover and open territories for the organization.
  • Resentment and distrust of management and leadership, again potentially leading to turnover and business disruption.

When we talk to management and leadership about what we hear from the sales force, we often don’t get the best answers – “Wall Street is expecting 15%”, “We think we may have the new product out by the end of the year but it’s been delayed a few times”, or “We always have to grow by a double digit percentage, but you are right, the last few years the actual growth has been around 1-2%”.  We tend to believe the long term pains of over exuberant quota setting far outweigh any short term or perceived gains.  In fact, we’ve had two recent clients who over-allocated quotas by 15-20%. The results were both organizations consistently had only 30% of reps hitting goal while the organizations themselves still managed to meet overall objectives. Morale sank, turnover increased, and no amount of quota over-allocation could keep the organizations’ future results on track! The perceived overall near-term success could not be maintained, and each had to rebuild the sales organization and resulting growth engine.

So when you set or get that number for 2015, use some common sense, and ask the “why” and the

You Can Set Better Quotas by Focusing on Better Sales Planning

Monday, May 13th, 2013

By Clinton Gott and Ted Briggs

Quota Plans are Plentiful but Good Quota Setting Processes are Not

Quota based plans are very prevalent today and with good reason.   Quotas allow for customizable plans taking into account the unique qualities and potential of each territory.   They promote “fairness”, are easy to understand, and are relatively easy to administer.

However, the most common complaint that we hear  when working with clients that use quotas is “we are not good at setting quotas” followed by “ can you help us set quotas better”.   As sales compensation and sales effectiveness consultants, we at BSC most certainly can and do help our clients set better quotas by employing a tried and true process that includes both top-down and bottoms-up forecasting along with a mathematical approach to allocating national and regional forecasts to territories.  A basic quota process methodology often looks like Exhibit 1.

That being said, we often encounter overly simplistic approaches to allocating quotas to individual territories such as the “peanut butter” method where the national goal or growth goal is equally spread out over all territories.  Some augment this approach using a “chunky-style” peanut butter method (if you will) that includes territory size as a modifier for allocation (e.g., larger territories have to grow less as a percentage than smaller territories).

Quota Setting is a Direct By-product of Sales Planning

However, what these simplistic approaches ignore or gloss over is that quota setting is really just a by-product of good sales planning.  The best methods for sales planning include taking into account both “internal” factors such as financial data and “external” data such as market opportunity and access.  This type of approach allows each territory manager to take into account the key drivers of sales potential.  That includes not only territory size but characteristics such as customer population density, competitive threats, access to customers, regional cultural norms, and regulatory differences, to name just a few.

The good news is that companies are already capturing data on most of these characteristics in the ubiquitous salesforce automation systems that have been increasingly deployed over the last few years.  And even if at headquarters, some characteristics like customer access lack hard quantitative data, we  can use these tools to get directionally accurate information from the people who should have the most insight, namely the territory representatives themselves.

Set Better Quotas and Improve Sales Planning

That is why we encourage our clients to use a Quota Setting Framework that utilizes both internal and external factors to set quotas (see Exhibit 2).

A simple such framework would involve picking the 3 or 4 factors that impact sales potential for each territory and for which you do not have hard data (such as sales volume) and have the territory reps and their managers rate each factor on a scale of 1 to 3.  These ratings can be aggregated and translated into a growth or allocation factor for each territory that leads to better quotas that reflect a truer picture of territory potential. While not a perfect mathematical solution, these inputs can represent “the art” element in the art and science nature of quota setting.

Of key importance, these same factor ratings can then be used for more meaningful and impactful sale planning discussions between territory reps and their first line managers.  These strategic and tactical coaching opportunities can have a great impact on overall sales results.

In summary, using a better quota setting process is really using a better overall sales planning process, which can help you to recognize the true value of a great sales incentive plan – increased sales performance!

BSC’s Inaugural Quota Practices Study

Saturday, May 11th, 2013

Quota-setting. If that phrase causes a twinge of pain, you are not alone! Over our many years of working with sales organizations, quota-setting has been a topic that causes consistent concerns across both the sales force and those concerned with their performance. The stakeholders we talk to often label it as the most challenging issue when describing their key sales effectiveness and compensation pain points.

Recently, we partnered with WorldatWork to conduct a comprehensive study on quota-setting practices that included over 80 leading companies across a wide range of industries. Only 21% of respondents rated their quota setting process as “very effective” or “effective”, so clearly, there is room for improvement. Of equal concern, only 25% of companies felt their quota-setting accuracy was “very accurate” or “accurate”. And maybe worst of all, we found that many companies were still doing things “the same old way” in terms of tools, processes, and data inputs. Yet there is good news as well; companies express a desire and intention to invest strategically and tactically to find better solutions for this important topic.

You can find all the latest trends and learn more about how you compare by downloading our executive summary report here: Quota Practices Study – Executive Summary from BSC & WorldatWork

And for the full report, please email us at info@bettersalescomp.com.