Measuring the performance of the sales force

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Tips on selecting metrics for sales incentive plan design purposes.
Use of quantitative and qualitative measures.
Impact of pay communication on sales employee engagement, and use of performance management and employee appraisal as a channel for these conversations.

Published in: Business, Technology

Measuring the performance of the sales force

  1. 1. MEASURING THE PERFORMANCE OF THE SALESFORCE Sandrine Bardot – CompensationInsider.com
  2. 2. Agenda 2      Background Quantitative performance measures Qualitative performance measures Implementation Sales employee performance appraisal © 2013
  3. 3. 3 Background Linking design to company strategy Driving behaviours through the Sales Plan What's necessary to set proper objectives What can go in the way of good metrics selection © 2013
  4. 4. Sales compensation vs sales budget 4 © 2013
  5. 5. Linking design to company strategy 5 Source : CLC © 2013
  6. 6. Driving behaviour through the Sales Plan 6  Main objectives are growth and/or profitability  Typical internal / employee focused objectives :      Differentiate high and low performers, manage the latter out Ensure external and internal pay equity Reduce sales administration burden Skills acquisition Communication corporate strategies © 2013
  7. 7. What’s necessary to set proper objectives 7      The sales incentive plan does not exist in a vacuum Address the structure of the sales department before making any investment in technology Define outstanding performance Quality, easily traceable data Simplicity of design and low number of objectives © 2013
  8. 8. What can go in the way of good metrics selection 8  Not recognising the differences in roles  No good IT and reporting  Ignoring marketing seasonality, promotions etc  Not understanding crediting rules and other reporting realitines © 2013
  9. 9. 9 Quantitative performance measures Measures Mechanics Payout calculations © 2013
  10. 10. Quantitative performance : measures 10  4 categories of Sales measures :  Production (volume) : revenue (total, new, renewal), price, margin…  Products (including services) : units sold, product mix, up-selling, product introduction…  Accounts (customers, channels) : new, retained, expanded, satisfied…  Milestones (events & activities) : threshold achievement, contract sign-up © 2013
  11. 11. Quantitative performance : mechanics 11        Profit-funded bonus pool ? YTD versus annual quota or seasonality impact and quarterly quota ? Thresholds Hurdles Sales elasticity variation (hunters or farmers) Accelerators (additive or multipliers) Caps or ceilings (if any, hard or soft) © 2013
  12. 12. Design elements : Payout calculations 12  Payout frequency Payout curve : straight line, exponential, stair step, Scurve…  Will you allow draws ?      If so, recoverable or not ? If recoverable, is year-end payout calculated on each performance measure separately or together ? What is used for revenue calculation ? How do you manage     Windfalls and exceptions Multiple crediting / double booking (geographic vs major account) Multi-year agreements Newcomers... © 2013
  13. 13. 13 Qualitative performance measures Best practice on choice of measures categories The debate Linkage to quantitative targets © 2013
  14. 14. Best practice on choice of measures 14 Performance measures Description Number of metrics 2 -3 Most common metric 76% of companies Revenue-based Revenue, volume… 61% average relative weight 2d most common metric 39% of companies Profit-related EVA, contribution… 18% average relative weight Final metric (10-20% of objectives) Qualititative or customer centric CS, new account, skills acquisition…. © 2013
  15. 15. Qualitative performance : the debate 15 “Hard” measures    Direct impact on company results Pay at risk, upside potential and funding models require hard measures for fairness Soft measures tend towards stable pay outcome despite performance fluctuations. © 2013 “Soft” measures    Useful in tough economic times (recognition, retention) Especially adapted to long sales cycles The end does not justify the means. Officialise company focus on “good” behaviours vs “bad” ones.
  16. 16. Qualitative performance : linkage to quantitative 16  Shift from purely sales results-driven incentives  Incorporate other performance metrics :  Incentive pay factors  Modifiers (hurdle, accelerator, matrix)  Additional incentives © 2013
  17. 17. 17 Implementation Goal setting Modeling and deploying the plan © 2013
  18. 18. Goal setting 18  Cascade of objectives :   Sales manager quota ≥ sum of ICs objectives Alignment :  VP on booking vs sales execs on shipping => discrepancies in achievement and payment  Measurable, aggressive yet realistic objectives  Define degree of freedom at individual and team level for goal setting © 2013
  19. 19. Modeling and deploying the plan 19 Test against historical results  Model the plan at the individual and overall level  Test concepts with small group of proven performers      Create a scalable process Ensure accurate incentive compensation and easy plan administration Write careful plan documents Include tools (data, self-service, analytics) © 2013
  20. 20. 20 Sales employee performance appraisal Influencers of employee commitment Employee appraisal and the sales force Sales managers and pay communication © 2013
  21. 21. Influencers of employee commitment 21 Formal plan communication 22% How organisations pay Sales incentive satisfaction Manager communication 48% How organisations communicate about pay Process fairness perception Actual fairness of pay distribution 64% Employee commitment 57% higher vs effort of strongly not committed Source : CLC Discretionary effort - Impact on company results © 2013
  22. 22. Employee appraisal for the sales force 22   Line managers own motivation and development of sales team Classic of employee performance management :       Self-appraisal for reflection on results, values, and career goals Assess competencies and behaviours, perform skills gap analysis and implement a development plan Establish pay raise and promotions opportunities, sanction nonacceptable behaviours Establish bridges / de-silo sales from rest of the organisation through a common process Relationship building and retention For company, identification of future sales managers, adaptation of training, coaching ,and “internal” on-boarding processes. © 2013
  23. 23. Sales managers and pay communication 23  At least 2 discussions per year (+23% fairness perception)  Clarify the relationship between pay and performance Performance criteria  Bonus criteria  Pay criteria   Cover pay potential Promotion timeline  Compensation growth potential  © 2013
  24. 24. Recap - a comprehensive approach 24 • Clear goals and strong line of sight • Clear payment opportunity • Main recognition tool for the sales force • An on-going conversation based on feedback • Opportunity for development plan • Basis for career decisions • Somewhat spontaneous • On-going, timely delivery • Meaningful but modest reward value, if any © 2013
  25. 25. Example one 25  Selling products on a short sales cycle :  Variable pay = 1.5 fixed pay  Base salary according to position  Monthly quantitative “commission” based mostly on revenue and margin  Quarterly bonus based on “quality” of sales (product mix, regularity of sales, visits follow-up) and “job competencies”. © 2013
  26. 26. Example two 26  Selling solutions to long-term customers :  Annual bonus paid with 3 quaterly advances  Based on Revenue, New Business, Retention, Customer Satisfaction, and Other Objectives  Percentage of on- target varies according to position (15 to 45%)  Sales support get the regular bonus, “adapted” to reflect their role in the sales process. © 2013
  27. 27. Free resources from my blog 27       http://compensationinsider.com/analyse-my-sip/ http://compensationinsider.com/why-am-i-not-on-thesales-incentive-plan/ http://compensationinsider.com/why-the-sales-directorhas-less-on-target-incentive-than-the-sales-people/ http://compensationinsider.com/prospecting-or-existingcustomers-what-do-you-focus-on-in-your-salesincentive-plan/ http://compensationinsider.com/a-dinosaur-in-dubai/ Recommended reading : Compensating the Sales Force by David Cichelli © 2013
  28. 28. Thank you ! 28 +971 566 172 864 Sandrine@Compensationinsider.com 240+ free articles on C&B ! Subscribe at : http://CompensationInsider.com Check my profile on LinkedIn for Sandrine Bardot Recommendations, Expertise and Consultant, trainer, free presentations. speaker, blogger © 2013 Twitter : @CompInsider

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