This afternoon I received a call from a friend looking for some advice on building out a sales compensation plan. Her challenge was especially difficult because a lame-duck manager (who had secretly been planning his exit) had reduced his teams’ 2019 sales quotas by 30% – absorbing the difference under his own quota. Naturally, since he left at the end of 2018, the company was left with a gap of 30%. Her question: how would I fix this situation.
As we spoke, I realized how much I missed the problem solving aspects of sales management. While it’s only been two years since I left sales management to round out my resume with product and strategy roles, I realized today how much I’ve missed the challenge of creating win-win resolutions that ultimately drive revenue and power organizations.
Getting back to my friend’s dilemma, let me see if I can describe her problem in detail while maintaining her anonymity.
- The sales manager had deflated 2019 sales quotas (both new business and existing business numbers) by 30% +.
- He left behind a sales team consisting primarily of account managers. He hadn’t built a hunter sales group. Across numerous divisions which he managed, not one had exceeded their quota for new business.
- He failed to properly manage up or out his sales talent.
This isn’t the first time I’ve seen a similar situation. Recently, I encountered a sales manager who miscalculated his teams quotas; when you added up the quotas of his entire team they didn’t equal his quota for the team as a whole. Best practices are that the sum of your teams quota should be 20-30% higher than the team’s cumulative number. So if you have a 1 million dollar budget to spread amongst 10 salespeople, you give them each $120K to $130K. The logic behind this is very simple – it’s likely not everyone on your team will hit 100% of their number!
To solve his revenue gap, the sales manager wanted to raise the entire teams individual goals, mid-year. I pointed out that his sales team would (accurately) perceive this as him penalizing them, and suggested that rather than raising goals he should create an incentive program to encourage team members to over-achieve their existing numbers.
Back to my friend’s issue – during our conversation, I laid out a multi-step approach to resolve the sales issue at hand:
- Adjust the sales numbers. While the sales team has been given their numbers for 2019, they hadn’t had their review for 2018. This would be a great time to increase their quotas for existing accounts. I suggested doing this for existing accounts, versus new business accounts, simply because while each salesperson carries both a new and existing quota, this group tends to gravitate towards existing business sales. They are not hunters.
- The Carrot. Create extra incentives, with accelerators, for sales people to exceed their numbers. The most fair system I’ve seen breaks the yearly number into months or quarters, and only pays a salesperson when they’ve reached 80% of their goal for that period. So up to 79% of goal they get no commission. From 80-99% of commission they get 80% of commission. At 100% of goal they retroactively get their entire commission, and anything beyond that has multipliers to incentivize the salesperson to really knock the ball out of the park.
- And The Stick. They need to manage out the poor performing talent. During the weekly sales meetings (which were non existent under the previous management) they need to hold all salespeople accountable for their numbers – and in particular their historical sales commitments. It’s not uncommon for sales to talk about the shiny object each week, and forget to mention the incredible account from two weeks ago that is no longer viable today.
While the numbers of building sales compensation plans is all science, the structure is all art. You need to build a model that incentivizes that right behavior, and in particular with situations like the one I’ve described above, quells any “sinking ship” fears that a salesperson may have.