Posts Tagged ‘sales effectiveness’

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.

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

Introduction to Compensation Cost of Sales (CCOS)

Monday, May 6th, 2013

By Ted Briggs

After almost 25 years of consulting with leading companies on sales effectiveness and sales compensation, I’ve come to the conclusion that other than calling every sales compensation plan “commissions”, the most misunderstood and mis-applied concept in sales compensation is CCOS, compensation cost of sales. In this blog, we will examine what is CCOS and why should a company look internally rather than externally when using this important metric.

What is CCOS and Why Should a Company Look Internally rather than Externally?

Before providing a definition of Compensation Cost of Sales (CCOS), let me first tell you a familiar story. Whether it comes from an email question to our firm, or a question in an initial client meeting, we are frequently asked: “What’s the average commission rate in our industry?” as if it’s a test of our knowledge and expertise, or some attempt to defend a company’s current plans against some internal attack that their plans are too rich. My favorite answer is “2.4%”, said with much certainty and a wry smile or emoticon if electronic. I often want to reply as Marisa Tomei responded in her Oscar winning performance in “My Cousin Vinny”…”That’s a b&%%$#!+ question.”

Naturally, commission rates vary widely even in similar industries, as well as within a single company, as roles vary (e.g., major or global account roles versus territory or inside sales roles). This is because compensation levels and base salary to incentive ratios typically vary by role, as do the range of expected sales volumes. Try creating an average rate by company, more or less across companies, and you quickly realize how unimportant that comparison actually is. Try selling the comparison to your sales leaders and you’ll be pushed back farther than you may be able to able to recover.

The question companies really seek to ask is how much am I spending on my sales force versus other companies. This too is a challenging concept. Cost of Selling studies are rife with definitional inconsistencies as to what categories of cost to include (sales office building leases, overhead allocation, etc.) as well as whether the denominator should be actual current period revenue, or sales bookings.

Ultimately, the one comparable ratio becomes CCOS, which looks at what current period compensation (base and variable) is as a percentage of current period revenue. This measure is really a productivity measure answering: how much of every dollar do I have to spend to get a dollar of revenue? Naturally, in some businesses, total bookings, or even total gross margins (especially in distribution) may be a better denominator, but for most product based companies, revenue is the best metric. Of critical importance is to use a real financial measure, rather than sales crediting, which can be a distinctly different currency due to modifications in deal values and multiple sales crediting.

CCOS = [Total Salaries Paid + Total Incentives]/Total Revenue

Once calculated, the question becomes how to get data to compare it to. Absent having a benevolent consultant conduct one for free, you can charter a study with comparable companies. But once you get the data, what do you do? Let’s say you find that you are in the 70th percentile of spend….what do you do?

Do you cut pay, increase quotas, or reduce accelerators? Probably not! Assume you’re in the low 30th percentile of spend…now what? Raise pay, add salespeople?

Actually, what you need to do is look internal… deeply internal, and look over time to see trends. A total company CCOS rate is like an average of averages, and an average productivity measure gives you nothing with which to analyze and improve. First, you need to look at the detail, segment by segment, as well as region by region. Here, you can identify where you are performing most effectively, and least effectively. Next, you should look at not just last year, or this year’s target; include two years ago, so that you can see a trend. Which segments or regions are improving. This data gives you a chance to look for root causes of increased or decreased effectiveness.

One other cut of CCOS we like to see is new hires versus sellers with at least a year of experience. This can help you examine your investment in incremental headcount growth, and not apply the same treatment to all sellers. This can keep you from burdening legacy employees with extra quota to try and afford new talent.

One last thing to examine is a look at relative performance of each of your segments and regions versus your market. By defining and reviewing the growth rate with the CCOS trends, you can identify where results and effectiveness are best aligned, and of course, where they are not. This can help you understand your relative achievement versus the competition or broad market, and how effective your spend is in reaching those performance levels. The following table shows examples and some conclusions you might make.

This can help you focus your sales management efforts on coaching, training or even talent recruitment to try to drive incremental results. You can also do root cause analysis to see if there are competitive factors hurting or helping you in those specific segments or regions. Lastly, it can help you develop segment specific sales compensation plans and targets that better suit the environment in which the sellers are actually performing, and can better drive their motivation to succeed.