Setting Your Sales Force Compensation

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Many business owners struggle with salesforce compensation. If this is you, you are not alone.  It comes up all the time in my Revenue Generation consulting practice.  Some feel they are not paying enough and worry their best sellers will leave. Others feel they are overpaying and are giving away margin dollars.  Maybe salesforce compensation is a burr in your saddle? If yes, here’s some thoughts that might get your sales comp plan right sized in short order…

To begin, determine exactly what selling behaviours you would like to incentivize and which you would like to discourage.  If the sales role is primarily hunting and bringing on new business, you want to provide a strong financial incentive for all hunting activities and results. If the requirements are mostly around farming and account management, the plan should reward farming activities and results.

Before setting your comp plan determine if you have the right people in the right sales roles. I’ve often seen farmers in hunting roles, which never ends well. Interestingly, it’s rare that a hunter ends up in a farming role. I think they self-select out of those jobs. If you have a miscast player your comp plan will not do what is designed to do regardless of how well it is constructed.  This means you may need to get the right people into the right seats on the bus before you change your comp plan.

With your hunters and farmers appropriately placed, it is time to look at how your plan is constructed. The best hunters are coin-operated, so ensure your plan rewards bringing on new customers, and is uncapped. I have seen capped plans, you can guess what happens, hunters hit the max compensation and stop selling. You don’t want that.

For your farmers, have your plan reward them not only for account retention, but year-over-year growth. Retaining a customer with significantly declining revenues does not help your business.

The steps to creating a plan for either role are…

  • Begin with the Total Target Compensation [TTC] for the job role.  This number is typically arrived at by looking at comparables within your market.
  • Decide the split of base salary to commission earnings that will make up the TTC.  For hunters you would want a 40% base salary component. For farmers, 60%-65%.
  • A note on hunting roles with a high base salary… I consistently see that hunters with a high base salary produce less revenue than those with a lower base salary. They simply are not hungry enough and have been made too comfortable with the higher base salary.
  • Determine if you would like to base commission earnings on the attainment of achieving a gross revenue or Gross margin sales goal. [Which you pick is based on a number of factors – too much for this posting. Happy to chat about this if you would like].
  • Your commission percentage number will be determined by the sales goal number and the commission earnings needed for your seller to hit their TTC when achieving 100% of their sales target.

As an example…

  • Sales Role: Hunter.
  • Total Target Compensation: $100,000 per year.
  • Base salary/commission split: 40%-60%
  • Base Salary: $40,000 per year
  • Commission Earnings at 100% of Sales Plan: $60,000
  • Sales Goal Type: gross revenue sold.
  • Sales Goal Detail: if a salesperson is required to sell $300,000 gross revenue per year, then the commission percentage must be 20%.

To make this compensation plan uncapped but not break the bank, a few thoughts…

  • After the sales person achieves 100% of their sales goal the commission percentage drops to a lower number for additional dollars sold.  The additional dollars sold could be tiered so that the 1st block of $20,000 sold above sales plan has a lower commission percentage than 20%. The next chunk of $50,000 could have a lower percentage still. You need to play with the numbers to ensure that you maintain your margins, but you get the gist.
  • For your comp plan to work you need to have your sales goal setting correct. If you make the goals too high your sellers won’t earn enough and may go elsewhere. If the goals are too low, you will then be overpaying for your sales results and erode your margins.
  • In terms of the frequency of commissions payout it’s been my experience that monthly is best. This maintains a short time frame between your seller selling and then getting the positive feedback reward for doing that selling. Also, if the base salary is a relatively smaller part of their compensation, regular commissions will help their cash flow.

So, there is a lot to think through when it comes to setting your sales force compensation. If you have any questions, I am absolutely happy to chat [no strings attached!]. Please feel free to reach out [email protected]

 

 

Wisdom comes haphazard to no man

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Every now and then I come across interesting content that helps inform my approach to business. The following article was written by Ryan Holiday and arrived in my inbox via his daily newsletter based upon the thinking and writing of The Stoics. It contains some great thoughts about the value of taking a lifelong approach to learning. RM

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Late in his reign, a friend stopped Marcus Aurelius as he was leaving the palace, carrying a stack of books. Finding this to be a surprising sight, the man asked where Marcus was going. He was off to attend a lecture on Stoicism, he said, for “learning is a good thing, even for one who is growing old. From Sextus the philosopher I shall learn what I do not yet know.”

That’s right, even as the most powerful man in the world, Marcus was still taking up his books and heading to class. In fact, Sextus was only one of his philosophy teachers. In Book 1 of Meditations, he lists the names and what he learned from six others, including one from a rival school and another, Rusticus, who Marcus thanks specifically “for introducing me to Epictetus’s lectures—and loaning me his own copy.”

You cannot find a Stoic who did not also treat their study of philosophy with this kind of lifelong seriousness. Zeno washed up in Athens and began studying under Crates, a well-known Athenian philosopher. Then, Cleanthes studied under Zeno, for decades. Cato was famous for his philosophical dinners, where invited the smartest and wisest minds of the ancient world to discuss the big philosophical questions he was struggling with. Even his last meal—before his famous suicide—he was debating the very implications of life and death, good and bad, with such teachers. Epictetus was taught philosophy by Musonius Rufus before becoming a teacher himself, of both the emperor Hadrian (directly) and Marcus Aurelius (indirectly).

Part of being a philosopher is being a lifelong learner. School is never out for summer or spring or winter break. You can never be too old or too good at what you do. No, school is for life. And life is school. Learning is a daily thing, wisdom an endless pursuit. You never arrive, you never fill up, you never graduate. Because the world is always revealing new lessons…even in the oldest texts.

Therefore, Seneca said, there is no one more foolish than one who stops learning. Even if you are one of the best at what you do, Seneca writes, “you should keep learning…to the end of your life.” He then points out one of the great things about learning—something that is overlooked. Wisdom is one of the few certainties in life in the sense that it is one of the few areas of growth we have control of. Money, titles, influence, authority, admiration — these are great but for the most part, they’re out of our control. But wisdom, learning, studying, Seneca says, do not fall upon us by chance. “‘How much progress shall I make?’ you ask. Just as much as you try to make. Why do you wait? Wisdom comes haphazard to no man.”

3xROI

3x-5x Your ROI

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The Bottom Line: A business owner should have their sales team generating at least 3x-5x their total compensation annually.

The Pain: When some business owners invest in hiring salespeople their primary measure of ROI is simply relief. “Thank goodness I finally have someone to take care of sales in my business!”.
A common trap/pitfall at this point is to bask in this relief and simply expect the sales team to go out there, drum up business and bring it home.

Nine to 12 months down the road is a frustrated business owner who’s invested significant money in a sales person[s] who did not perform. Not only is the compensation money down the drain, the expected revenue lift did not occur, which of course negatively impacts pretty much every area of the business.

The Fix: Before hiring salespeople set out their revenue goals. If your candidate was a solid fit they should produce the amount that you paid them all in + their benefit costs etc. at minimum in their first year. Good would be 2x that number. After 24 months that person should be producing at least 3x that number. Good would be 5x that number. Considering this will inform the compensation level at which you can afford to hire. It becomes quickly apparent that the best way to compensate a salesperson is to have a medium level base salary with an uncapped commission program. This will keep your fixed costs low and when your seller performs, you can then afford to pay them handsomely.

Next, document your sales process as it exists today. Teach it to your new sales hire[s]. Work with them weekly [yes, weekly!] to optimize it using Deal Opportunity reviews to understand its strengths and weaknesses and course correct as you go. Make CRM your one source of truth around sales. The mantra is “if it’s not in CRM, it didn’t happen”.

“But what if I have a sales team already and they are not producing 3x-5x total compensation?” This of course is a bigger nut to crack. At this point you may need to reengineer a] your sales compensation plan, b] your sales team composition, c] your sales process, or d] all of these.

A business owner is after a sales compensation plan with a lower fixed cost [modest-based salaries] and a higher variable cost [a commission program that incentivizes appropriate selling behaviors]. This is a shared risk & reward model. When sales go up, the sales person is rewarded, as is the company. Note that not every sales person likes this model. If they are a true Hunter they’ll love it. Hire Hunters.

Skip the School of Hard Knocks

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You likely learned a ton about how to run your business by attending the School of Hard Knocks. You are likely [and justifiably] proud of making it through not only intact but looking pretty good! When it comes to the sales function however, skip school this time. If sales aren’t your passion, your results aren’t great, or you already have 1000 other things to focus on, bring on someone to steer the sales function for you and you’ll be ecstatic with the results. Here’s why…

You are Human – not a machine. Running a business is tough enough without piling on another departmental leadership function on top of that.

Revenue is the Life Blood of Your Company – If you are bootstrapping, Cash is King. If you are funded, revenue lengthens your runway. If your sales results aren’t great, that should be addressed.

Sales is Way Harder Than It Looks – Look at those guys and gals over their blabbing on the phone closing deals. What could be easier? Trying to optimize and implement a sales process requires a lot of bandwidth.

The Sales Cliff Sucks – If the sales wheel isn’t continually turned, funnels dry up quickly, and revenue falls off fast.

Your Options:

Your first and most obvious option is to hire a Sales Manager, or the like. This works if you a) have the money and b) are at a growth point at which this makes sense.

If you are at 2-3 sales people and revenues are trending up, then hiring this person is an investment that will likely have a great ROI. Also, hiring this person lets you work more “on” your business rather than “in” it. If, however, revenue is light at the moment it may not make financial sense to spend the dough on an FTE. The time to payback may be longer than you are willing or comfortable to wait. In this case there is another option.

That other option is to hire a consultant – just as you would for any other business function. There are sales consultancies of all stripes. Some are awesome at pumping up your team with motivational speeches. Others are great at teaching your team how to conduct highly productive sales conversations with buyers. Some work with you to optimize the steps of your sales process to increase sales velocity and deal size. On the upside whatever your need it’s likely you can get it addressed by a credible expert for far less than the cost of an FTE. On the downside if your team needs hourly/daily leading, then a consultant by design can’t fulfill this.

If Sales is a passion for you and you have the bandwidth to tend to the team and run your business as well, by all means, keep managing the sales team. Otherwise, take action now and hand the reins to an individual who can focus squarely on the task at hand and drive your revenue results.

Will Your Sales Approach Support Your Growth Goals?

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How much revenue will your sales team close 90 days from now? If you can’t answer this question with any level of confidence you are not alone. Many leaders I chat with struggle to predict their sales team’s revenue even 30 days out. If you aren’t all over tracking your leading sales indicators, it’s next to impossible to know if how your team is selling will sustain your business’s growth goals. By rigorously measuring the rate at which those “things that cause sales to happen” occur you will quickly get to reliable forecasting and an optimized sales process.

Off the hop let me identify the magic ingredient that makes any dashboarding work – rigour. Sounds almost redundant but I bring up rigor because its the number one challenge in implementing and leveraging dashboards. If your data is inaccurate or incomplete due to lack of rigour you will make poor decisions based on what your dashboards are telling you.

To clarify rigour, I mean accurate recording by your team of their sales activities every day, as they perform them. No “I’ll wait until Friday afternoon to enter in all my CRM stuff” approaches allowed. Who has the energy on a Friday afternoon to enter a whole week’s worth of sales activity micro-data? No one, that’s who!

Moving on, here are the core sales activities that will serve as your leading indicators.

Diagnosis Meetings: Interactions with Sales Leads, the purpose of which is to Diagnose their Pains and determine if they are a Viable Sales Opportunity. Not enough of these each week means a dry sales funnel in no time.

Demo Meetings: Meetings with Viable Sales Opportunities to demonstrate your product or service. Not enough of these weekly leads to a longer closing cycle as buyers often need to see what your product can do before saying yes to paying for it.

Solution Meetings: Interactions with Viable Sales Opportunities, the purpose of which is to finalize the version of your solution they’d like and allow you to solidify price.

Number of Proposals Presented: This value of this one’s pretty obvious.

As far as the goal quantity for each of the above, that varies widely from industry to industry and product/service to product/service. Generally, lower price point sales that are decided upon by a single buying influence require many more of each interaction type per week than high priced multi-buying influence ones.

The thing about sales activity goals is this – have one, for each activity. Work with your team to a) decide which things that cause sales to happen at your company should be measured, b) set the bar, c) adjust it over time until you discover the optimal amount of each activity required for reps to hit sales target. This continual optimization process is the path to confidence that your current sales process will support reaching your business’s growth goals.

Revenue Growth Hacking

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Every company wants massive growth, like now! I’ve worked with over 100 companies and here is a list of the top growth hacks [in order of importance] I have seen that actually work.

Staff Up – the top reason companies fail to achieve the hockey-stick-graph-growth is they don’t have enough dedicated staff selling all day, every day. Dual sales & service roles diminish the focus on new revenue acquisition. Hire more sales bodies now. If paying for extra salaries is onerous, scour the landscape and you will likely find either free or matching money to help get interns, or the like, manning a desk at your office.

Divide and Conquer – the sales job consists of several discreet tasks. a) finding leads and nurturing them; b) reaching out to them and scheduling an appointment to talk; c) moving them through the sales process to closure; and d) on-boarding those new customers and up-selling them. At minimum, have one Biz Dev person filling the top of the sales funnel, a Sales person closing them and a Customer Success person on-boarding them. Reengage sales to up-sell when appropriate.

Automate Your Sales – it’s mind-bending how many intuitive tools are available to automate every step of the sales process. Map out your process, then Google “what’s the best app for automating the [insert sales micro-function here] part of your sale?”. Pick your sales stack components, turn the key and fire it up.

Configure Your CRM – bake your sales methodology, language and processes right into your CRM. This is the ultimate scaling growth hack. When your CRM is your sales process, training a new hire on one aspect immediately trains them on the other. CEO’s love the revenue growth that follows.

Stomp on the Sales Gas Pedal Now – if you don’t have a robust Sales Staffing and Process & Tools infrastructure plan, create one asap. You can’t build a thriving business on a non-existent or shaky foundation.

You will definitely have to iterate to optimize all of your systems as you grow, so prepare to iterate over time to iron out the kinks. This way, when your revenue grows, your systems can scale with it.

The Heart of Motivation

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Selling is a funny job. It seems to require an unusual amount of motivation for one to perform consistently at a high level.

I’m not sure why this is. Does accounting require a high level of motivation to do it well? How about Human Resources? I don’t know – I’ve not done either of those jobs. I do know I can name many motivational sales speakers, but no accounting motivational speakers come to mind [if you know of any, please let me know!].

Maybe it’s the self-starting nature sales. Many of us work from home offices or are on the road flying solo, tasked with bringing home the bacon. One needs to be organized and active, efficient and effective and at the end of the month reach your sales quota.

With little [or more often no] supervision, sales people must find opportunities, sift out the bad ones and then close the good ones.

In most job roles the work is brought to you. In sales you have to go find it. Anyone who has opened a new territory or struck out on their own know this challenge well.

At any rate, I get asked so often how to motivate sales people I thought I’d address it here. Over 14 years and across 22 different industries here is what I have learned…

First, hire motivated sales people [duh, right!?]. It sounds obvious but many fail to do this. In doing some digging I’ve found that questions like “what motivates you to work hard to beat your sales quota” and “what jazzes you up about selling day in and day out” are not in the top 10 questions hiring managers ask. I’d take a highly motivated unproven salesperson over a non-motivated seasoned vet any day of the week. Start asking these questions early in the hiring process if you haven’t done so already.

Once hired, train your salespeople weekly – yes, weekly! Think coaching, sales skill practice, sales book of the month club discussions and the like. Motivated people eat training for breakfast, they love it! They want to consistently improve because that’s just the way they are wired. Plus, it helps them to earn bigger commissions. Ignore training at your peril, it is a primary motivator.

Finally, de-hire non-motivated salespeople now! Move them to a different role in your organization where they can soar with their strengths, or exit them from the company. If they are non-motivated keeping them in their current role is unfair for all parties. I will share with you that this is the one piece of advice my clients are slowest to take, but after they do their response is universally consistent, “why did I not do this sooner?”

Once you have your team of champions in place, here are some ways you can inject some additional motivational mojo over the course of the sales year…

Sales contests

You know the drill on this one. The new spin? Have the team select the prize they want. Some want cash, some want gift cards, others want time off. Create a menu of prize options and let each team member decide what they want to run hard for. Winning a big screen tv might pump up one rep, but leave others totally flat.

Trophies

I had a client with an all-female sales team, selling into the spa industry. They jokingly had a sales tiara that sat on the desk of the previous month’s top seller. The competition for the tiara was friendly, but surprisingly fierce. Another client had a sales gong in the office that those who closed a deal could drop the hammer on as soon as they hung up the phone. Interestingly, I find the more quirky the trophy, the more people like it. What would your team’s equivalent to the sales tiara be?

Added Responsibilities

What?? Don’t people want less work, not more? I’m not saying pile more work on your successful sellers, I’m saying add some cool new wrinkles into their role that stoke their internal motivators for personal and professional growth / role enrichment. Give them Key Account selling responsibilities. Entrust them with mentoring your newest and brightest. Bring them to the table for new product development meetings. Include them in marketing meetings and solicit their input on next year’s campaign.

Underneath it all, the true heart of motivating your people is getting to know them outside of their job role. It is proven that one of the top motivators around job role performance is an employee’s relationship with their direct superior. What have you done lately to fan those motivating flames?

Accountability And Sales Success

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The-Oz-Principle-CoverSales is the ultimate accountability sport. Win or lose, the scoreboard is visible for everyone in the company to see. The accountable sales team owns their results and continually strives to improve them. Getting to accountability is not always easy though. I have found a tool that makes that road a whole lot smoother. Let me share it with you.

The Oz Principle is a book by Roger Connors, Tom Smith and Craig Hickman. In it, they describe a highly effective method any organization can follow to increase accountability towards performance improvement.

In the book the authors identify a line in business that separates success from failure. This line applies to every employee in every department – from sales to operations to management. Below the line is the blame game. It’s where people come up with excuses for why sales targets weren’t met or projects weren’t completed on time. Above the Line® is where people take ownership. These people look for solutions. They are the action takers; the ones who are committed to success.

It is perfectly normal to slip below the line once in a while. Sometimes it feels very legitimate to blame someone or something else for a current situation, especially when we feel helpless to change our circumstances. But what is discussed in The Oz Principle®, with comparisons to L. Frank Baum’s The Wizard of Oz, is that it’s only through accountability that we find the best solutions & achieve greater success.

We can tell we are below the line if we are ignoring or denying a problem, claiming it’s not our job, pointing our fingers at someone else, wanting someone to tell us what to do, spending our time covering our tails, or deciding to wait and see if the problem will go away on its own.

When this happens, it helps to keep The Oz Principle’s definition of accountability in mind:

A personal choice to rise above one’s circumstances and demonstrate the ownership necessary for achieving desired results — to See It, Own It, Solve It and Do It.

This definition includes the 4 steps to achieving accountability: “See It, Own It, Solve It and Do It,” which this book gets into in great detail. When applied, this simple process works magic when it comes to getting a team to be more accountable for its situation and results.

The power of this book lies in its language. It provides a nonjudgmental, safe and respectful way to talk to your team about accountability, or lack thereof. To say “what I’m hearing from you sounds like Below the Line language” is far more respectful and productive than saying “quit your whining and get this thing figured out!”

I highly recommend this book to anyone in business. Over the years I have referred my clients to it innumerable times. Applying The Oz Principle changes the way your sales team looks at down markets and poor sales performance. It gives them a way to see their sales situation differently, take ownership of the elements that are theirs and create solid solutions that get revenue flowing again.

Two Tuna – Two Salmon

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The following exchange occurred at a sushi restaurant recently…

Me: I see on the menu you have tuna sashimi [note: for non-sushi people, sashimi is a generous bite-size piece of fish without the rice blob beneath], and Salmon sashimi, but not a combo. Could I please get 2 pieces of tuna and 2 pieces of salmon sashimi as one order?

Server: No, I’m sorry I can’t do that.

Me:  [surprised] Why not?

Server: Well, a combo is not on the menu and the boss is not here to say it’s okay to offer it.

Me:  ???

How empowered are your people? Do they have the authority and information required to make decisions of the type they need to make?  Having to “go to the boss” to get authorization for seemingly straightforward requests tarnishes your customer’s experience.

At best, going to the boss is a minor irritant like the sushi example above. At worst, it creates distrust in the mind of your customer. If you have bought a car it is likely you been left sitting in the Sales Associate’s office as they went to speak to the manager to get approval on one of your requests. You were probably thinking “Why do they need to go to the boss on this one? Is this some sort of ploy or negotiating tactic?”

Dealing with an empowered employee is a liberating experience. They either A) have been given reasonable authority to make day-to-day decisions or B) know the parameters within which their decision-making must be made. Either way, you end up with issues resolved more quickly, smoothly and with pleasant journey along the way.

Have a look at your policies and procedures. Are there decisions that require one up approval today that would be better put the hands of your staff?  Are there decision-making parameters you can outline that will facilitate them providing a better customer experience?  Perhaps allowing your folks to say yes to a 2 tuna and 2 salmon request will result in more satisfied buyers.

Bon appétit!

Hope is NOT a Strategy

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Planning for your team’s sales success means knowing — down to the account level —where the revenue to hit your sales targets will come from. Few sales organizations do this well. Buck the trend and be one of them.

Simply stated, there are two sources of new revenue: new revenue from existing customers, and “New Logo” business (net new customers who represent a “new logo” on your customer list). Forecasting how much of your required growth will come from each gets your team focused on the right areas straight out of the gate.

New revenue from existing customers is the easiest place to start. The cost of acquiring this business is low, as you are connected to key decision makers already. These customers know you and love you. There are two approaches to developing new business within your existing customer base.

The first is to have each of your people consider their top existing customers and ask, “What products or services do these customers not buy from us that are a natural extension of what they do buy from us?” For example, if you are in the office products business, maybe your top account buys their consumables from your company, but has never spoken to your decor design division.

Next ask, “Who within the account can I speak to and what questions should I ask to learn if they have needs that these extension products will fulfill?” Determine whether you are appropriately connected to begin the selling process. Does the person who makes the consumables decision make the furniture decision? If not, how might you get connected to that person?

Nailing down this detail will create a quick strategic sales plan that can be acted on immediately.

The second way to generate new revenue within existing customers is solution innovation.

It may be that you are meeting your top account’s stated needs already. Leverage this relationship and engage them in a “round table” idea-generating exercise to explore potentially unmet needs and consider ways to meet them.

For instance, maybe your top customer is facing cost challenges associated with rogue purchases made outside of their discounted contract with you. Perhaps a managed inventory solution — a service you don’t offer today — would be a perfect fix for this problem.

Take this idea to Engineering, Marketing, and R&D. You just might build something that other customers can use too.

New Logo business is the next revenue channel to explore. This is often higher-margin business that, although it is small today, can grow meaningfully. Broadening your account base by securing New Logo revenue makes your business healthy and stabilizes revenue flow.

Acquiring New Logo business can be slow and frustrating. These accounts are seemingly impenetrable fortresses with skilled gatekeepers and guarded decision makers. Cold calling them is ineffective and useless. To meet this challenge, play the “Six Degrees of Separation” game.

First, have each person on your team identify their top ten New Logo target accounts.

Then bring the team together with their contact databases. Determine if any connections exist within those databases to the New Logo targets. Generating warm referrals into these targets will get you out of the cold calling trap and into productive sales meetings.

Sound account planning is not difficult to do. The strategies you create will take your team from hoping they hit their sales goals to planning to hit them. After all, hope is not a strategy.