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Exposing the Myth Of Planned Obsolescence: Why the Sales Compensation Plan Must Change
Exposing the Myth Of Planned Obsolescence: Why the Sales Compensation Plan Must Change
Exposing the Myth Of Planned Obsolescence: Why the Sales Compensation Plan Must Change
Exposing the Myth Of Planned Obsolescence: Why the Sales Compensation Plan Must Change
Exposing the Myth Of Planned Obsolescence: Why the Sales Compensation Plan Must Change
Exposing the Myth Of Planned Obsolescence: Why the Sales Compensation Plan Must Change
Exposing the Myth Of Planned Obsolescence: Why the Sales Compensation Plan Must Change
Exposing the Myth Of Planned Obsolescence: Why the Sales Compensation Plan Must Change
Exposing the Myth Of Planned Obsolescence: Why the Sales Compensation Plan Must Change
Exposing the Myth Of Planned Obsolescence: Why the Sales Compensation Plan Must Change
Exposing the Myth Of Planned Obsolescence: Why the Sales Compensation Plan Must Change
Exposing the Myth Of Planned Obsolescence: Why the Sales Compensation Plan Must Change
Exposing the Myth Of Planned Obsolescence: Why the Sales Compensation Plan Must Change
Exposing the Myth Of Planned Obsolescence: Why the Sales Compensation Plan Must Change
Exposing the Myth Of Planned Obsolescence: Why the Sales Compensation Plan Must Change
Exposing the Myth Of Planned Obsolescence: Why the Sales Compensation Plan Must Change
Exposing the Myth Of Planned Obsolescence: Why the Sales Compensation Plan Must Change
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Exposing the Myth Of Planned Obsolescence: Why the Sales Compensation Plan Must Change

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presented at TrueConnection: Sales Performance Management Conference 2007 by Mark Davis, Managing Principal of Valitus Group, Inc.

presented at TrueConnection: Sales Performance Management Conference 2007 by Mark Davis, Managing Principal of Valitus Group, Inc.

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  • 1. TrueConnection Sales Performance Management Conference 2007 November 13, 2007 The Myth of Planned Obsolescence Why the Sales Compensation Plan Must Change
  • 2. Today’s objectives
    • Discuss the tension between Corporate and the field
    • Identify the key drivers of sales compensation change
    • Consider case examples that illustrate each of the change drivers
    • Reflect on the lessons learned
  • 3. When it comes to sales compensation plan change, the voices heard from the field… “ Why should we change the plan; we’re not losing staff?” “ We just figured out how to make money on the old plan, so they have to change it!” “ Management’s just trying to cut costs!”
  • 4. … typically don’t reflect reality
    • Sales compensation is a dynamic management tool
      • Communicates management’s strategic priorities
    • As business conditions change so should the approach to compensating the sales force
    • There are any number good reasons for changing the sales compensation plan
      • Most notably anything that fundamentally alters the charter of a sales role
  • 5. WorldatWork survey of sales compensation practices – reasons for change WorldatWork Survey of Key Sales Compensation Practices, October 2006
  • 6. Definition of obsolescence… The American Heritage Dictionary of the English Language “… being in the process of passing out of use or usefulness…” Merriam-Webster Dictionary of Law “… a loss in the utility or value of property that results over time from intrinsic limitations or external circumstances…”
  • 7. Intrinsic limitations and external circumstances… the drivers of sales compensation change
    • The strategic objectives which help define the charter of the sales force
      • Grow top-line revenue by 12%
      • Maintain share leadership in XYZ market segment
      • Improve margins by selling higher margin products
    • The means by which a company takes its product/service to market
      • Market segmentation
      • Channel strategy
      • Sales organization structure
      • Sales coverage model
      • Staffing levels
    • What customers need and value from your sales resources
      • Transaction efficiency
      • Consultative solution selling
    Business Objectives Go-to-Market Strategy Customer Buying Preferences
  • 8. Intrinsic limitations and external circumstances… the drivers of sales compensation change
    • The accountabilities of a sales role which begin to define an incentive plan’s performance measures
      • Manage and grow strategic accounts
      • Provide technical product support on an overlay basis
      • Grow existing business and acquire new accounts in a geographic territory
    • An organization’s ability to track and measure performance
      • Data capture
      • Level of aggregation
      • Goal setting capabilities
    • An organization’s ability to fund the cost of a sales force relative to:
      • Manufacturing costs
      • Other labor costs
      • Pricing strategy
    Sales Role Definition Supporting Systems Business Economics
  • 9. Telecommunications company with shifting business objectives Business objectives
    • Telecommunications equipment company shifting from hardware to software
    • Current revenue mix of 80% hardware, 20% software
    • Software much more profitable
    • Old sales comp plan did not differentiate between hardware and software revenue
    • Sales compensation plan measures and pays for software revenue separately from hardware revenue
    • Heavier incentive weighting placed on software results
    Change Driver Company Situation Resulting Change
  • 10. Business services company changing its go-to-market strategy Go-to-market strategy
    • Business services company going from three separate vertical market sales forces to a single cross-vertical sales force
    • Similar sales process and selling skills required in each vertical
    • Inefficient use of sales resources
    • Each sales force paid on segment-specific results
    • Deployment of a cross-vertical sales force
    • Sales incentive opportunity weighted toward highest priority market segment, with a secondary incentive for balanced selling across all markets
    Change Driver Company Situation Resulting Change
  • 11. Consumer electronics company with a change in customer buying preferences Customer buying preferences
    • Major retail accounts of a consumer electronics company say the vendor’s salespeople are spending too much time on low valued merchandising support
    • Insufficient support in terms of training retail sales staff and developing co-marketing programs to grow the business
    • Deployment of a lower cost merchandising support rep which freed salespeople to spend more time on activities valued by the customers
    • Ability to raise productivity expectations and upside incentive leverage reflecting the higher prominence of the sales role
    Change Driver Company Situation Resulting Change
  • 12. Clinical skin care company with a change in sales role definition Sales role definition
    • The aggressive pursuit of a new retail channel left the core spa business in decline
    • The sales force dedicated to the spa business was focused on account maintenance with no incentive to develop new business
    • Redefined sales role expectations to spend equal time between new account selling and existing account management
    • New sales compensation plan contained an aggressive first-dollar commission for new business with a quota-based bonus for growing existing business
    Change Driver Company Situation Resulting Change
  • 13. LTL trucking company change in systems measurement capabilities Supporting systems
    • Old IT systems prevented the measurement of profit contribution at an individual territory or account level
    • New systems implementation enabled accurate accounting for account profitability
    • Sales compensation plan paid solely on top-line revenue
    • Developed account contribution goals on the basis of historical performance
    • Introduced a new sales incentive plan to reward for both revenue and account contribution simultaneously
    Change Driver Company Situation Resulting Change
  • 14. Corrugated cardboard company with an evolving cost model Business economics
    • Fifty-year-old maker of cardboard boxes with the same first-dollar commission plan used from day one
    • Salespeople earning well above competitive market rates on modest production due to high commission rate
    • Cost of sales compensation out of line with the economics of the business
    • Restructured sales force separating major account sellers from geographic territory sellers
    • Differentiated sales comp plan by role:
      • Major account sellers with a modest pay mix and quota-based bonus
      • Territory reps paid a variable rate commission with a minimum performance threshold
    Change Driver Company Situation Resulting Change
  • 15. So the plan has to change – how often is appropriate?
    • Review sales compensation plans annually relative to:
      • Business objectives
      • Go-to-market strategy
      • Customer requirements
      • Sales role changes
    • Avoid mid-year changes if possible
    • Minor tweaks or adjustments are common each year
    • Major overhauls less frequently (e.g., every three to five years), depending on the pace of business change
  • 16. Lessons learned…
    • Understand that the sales compensation plan is a dynamic tool that needs to evolve with the business
    • Pay attention to the signs – those internal and external change drivers – that signal the need to change
    • Continuously monitor the effectiveness of your sales incentive plans
    • Be proactive, don’t wait too long to take action
    • Build a contingency plan at the outset
    • Forecast the expected shelf life of your sales incentive plan relative to anticipated changes in the business
  • 17. Questions? J. Mark Davis Managing Principal Valitus Group, Inc. 18031 Irvine Blvd., Suite 205 Tustin, CA 92780 714.505.9122 [email_address] www.valitusgroup.com

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