In an earlier blog, we reviewed the findings of Korn Ferry’s latest Sales Effectiveness survey, which indicated that low sales productivity is impeding revenue growth, the number one reported objective of sales organizations. The research found that while 85% of companies view revenue growth as their top financial priority, only 55% are making their growth goals. Average sales rep attainment is 95%, which sounds ok, but the average hides the fact that only 47% of reps hit target or above.
So how are sales organizations changing in order to meet growth targets: increasing sales productivity while still controlling costs and retaining talent?
Redefining markets, quotas, and roles
In striving to meet growth goals, sales management at many companies is redefining markets. Companies are segmenting markets along various lines, the top ones being:
- by geography (55%)
- by customer size (48%)
- by vertical industry (44%)
- by product/solution (27%, even though purchasing is more solution-focused than ever)
And, more than half of companies segment by more than one criteria, resulting in matrixed coverage, which contributes to compensation complexity.
Korn Ferry detailed the way organizations are redesigning sales roles to free up sales resource time and provide better development of sales resources, as well as to provide better post sale account coverage and development. However, more roles and changing roles further adds to the complexity of compensation design and sales crediting, creating a challenge for the SPM systems that need to manage these sophisticated compensation models.
Another challenge for SPM systems arises from the fact that 50% of companies said that they change quotas on average three times per year, either up or down. This may reflect changing conditions or inaccurate forecasting. But in any case, changing quotas affects comp plans—and turnover.
Combine the above—shifting quotas, changing market segmentation and territory definition, redesigned sales organizations and roles—and you can imagine there is a lot of change going on all the time in sales teams and in the compensation strategies being implemented to drive their behavior.
Lowering costs through productivity
Another impetus for improved sales productivity is to control costs. Compensation cost of sales is on average 7-8% of revenue. The ratio of company revenue to sellers varies greatly by industry, from an average of $3MM per seller in Life Sciences, to $26.5MM in Consumer. Yet no matter the industry, there is constantly a push for greater sales productivity to lower costs.
Companies are looking for technology to increase sales productivity as well as ways to enable their sales channels to cover their markets more effectively and at a lower cost. Again, this can mean changes to compensation plans to align sales reps with different territories or market segments and effectively encourage the desired behaviors.
Effect of pay and quotas on talent retention
All of the above—cost, quotas, change—contribute to retention issues. With cost pressures, while there may be money to recruit people, there often is not enough money invested in retaining them.
Retaining top sales talent is an issue, but just paying more doesn’t cut it anymore. While the survey results show that good reps leave due to pay opportunity, they care less about base salary and more about attainable quotas so they can make incentive targets. In fact, 30% of sales reps say they leave because of quotas. Only 47% make quota, yet ironically companies continue to increase quotas (by an average of 11% last year).
Korn Ferry says that actually 20-25% turnover in a sales org is good, if it’s the right turnover. However, all too often, too many low performers are staying and too many good performers are going.
Sales plans — complexity yielding confusion
Clearly a key driver of sales performance is the sales compensation plan. Or it should be. The survey found that 50% of reps do not understand their plans and 36% of sales leaders don’t either. Reps (50%) think their plans are too complex. And while 60% of sales leaders redesign plans every year, they are still seen as too complex and still don’t align fully with strategy.
Why are sales reps so confused about their compensation plans? They don’t have issues with what the plans measure, but have issues with how sales are credited.
The #1 reason for confusion? Crediting and the elusive definition of revenue. With so many different forms of revenue these days, it gets complicated. Committed/uncommitted revenue, booked revenue, contracted revenue, recurring revenue, deferred revenue, and a lot of discounting going on presents a challenge to plan administrators, sales managers, and reps alike. Careful plan design and a compensation management system capable of handling complexity in plans and crediting are essential.
Sales productivity can be increased with improved access to compensation information, and more clarity and transparency around incentive compensation calculations; this can pay dividends in enabling more selling time.
Analyzing performance can help sales management to understand and predict which reps are truly the top performers, or have potential, so they can determine where to best focus retention and development efforts.
With ever increasing complexity in sales organizations, market segmentation, and revenue recognition models, companies who want to meet growth targets need the ability to manage complex compensation plans that can drive specific behaviors yet still be easy for the field to understand. They also need the ability to make changes to operating models and plans as often as needed to adapt quickly to changes in the market and company strategy. The combination of complexity and constant change requires sophisticated sales performance management technology, yet can pay enormous dividends in sales productivity, attainment of revenue goals, retention of talent, and successful execution of strategy.
To learn what your sales organization needs to do to stay ahead of the curve in 2020 and beyond, watch the on-demand webcast featuring Korn Ferry and other industry experts.