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Sales Management Association Webcast

29 August 2013

Presented by

Hunters and Farmers: Best Practice

Approaches to Incentive Pay and Job Design

#hunterfarmer

About The Sales Management Association

A global, cross-industry professional association for sales

operations and sales management.

Focused in providing research, case studies, training, peer

networking, and professional development to our membership.

Fostering a community of thought-leaders, service providers,

academics, and practitioners.

Learn More: www.salesmanagement.org #hunterfarmer

Today’s Speaker

#hunterfarmer

HUNTERS AND FARMERS Best Practice Approaches to

Incentive Pay and Job Design

ERIK W. CHARLES PRINCIPAL INCENTIVES STRATEGIST, XACTLY CORP

@ErikChaz 5

COMPENSATION COMPANY

GOALS BEHAVIORS

OPTIMIZE

BEHAVIORS

@ErikChaz

$778 BILLION

Social Security

>$800 BILLION

U.S. Sales Comp

SALES COMP:

A STRATEGIC

CHALLENGE

$160 BILLION

U.S. Advertising

$484 BILLION

Medicare

6

@ErikChaz

Real Time Attainment Metrics

Pay Closer to Sales Event

Motivate Team

Trust in the System

BEHAVIORAL CHANGE

7

@ErikChaz

Leader in SaaS Incentive

Compensation Management

Focused Exclusively on

Incentives & Compensation

Driving Agile, Metrics Driven,

Pay-for-Performance Companies

Fastest Growing Provider

8

@ErikChaz

XACTLY SOLUTIONS

HCM ERP CPQ CRM

INCENTIVE COMPENSATION

BIG DATA PLATFORM

@ErikChaz 1

0

HCM ERP CPQ CRM

INCENTIVE COMPENSATION

BIG DATA PLATFORM

@ErikChaz

CONNECTING THE PIECES

@ErikChaz

Top and bottom line growth

Market share

Customer satisfaction

Strategic product revenue growth

New account acquisition

Top talent retention

Account/revenue retention

WHAT ARE YOU TRYING TO ACHIEVE?

@ErikChaz

DO YOU PRICE AND SELL ALL PRODUCTS THE SAME?

Product Mix?

@ErikChaz

Without incenting profits, margins can

collapse as the sales team chases pure

revenue numbers.

Consider adding a bonus for overall

profitability each quarter.

Don’t overload incentive pay with too

many variables. Zero in on the main

company objectives.

HOW SHOULD YOU MEASURE?

@ErikChaz

Annual Quota Targets

Quarterly Quota Targets

>80%

of quota

67%

>80%

of quota

60%

TIMING YOUR CASH FLOW

@ErikChaz

WHAT DOES QUOTA ATTAINMENT LOOK

LIKE?

100%

@ErikChaz

Set Territories based on zip codes, area codes,

named accounts, vertical markets, company size)

Check industry databases to ensure that there

are enough opportunities in each territory.

Not everyone makes quota, so don’t make the

sum of quota your annual goal!

If everyone is at quota, how much will the

company payout in total commissions?

CHECKLIST

@ErikChaz

When the deal is won?

Once the client is “live”?

After accounting recognizes the

revenue?

When cash is in hand?

WHEN SHOULD YOU PAY?

@ErikChaz

• Make it immediate

• Majority of variable should

be individual

• Team bonuses can be

accelerators or contests

• Awards – President’s Club

• Weekend escapes

• Gift certificates

MORE THOUGHTS ON REWARDS

@ErikChaz

BUILDING YOUR SALES TEAM

CAPTAIN PROSPECTOR FARMER SPECIALIST HUNTER

@ErikChaz

FIRST YOU HUNT REVENUE & GROWTH

@ErikChaz

DON’T GET DISTRACTED

Set measurable goals:

• Units sold

• Revenue dollars

• New customers

• Profits.

If you track multiple

metrics make one the

primary measure.

@ErikChaz

HOW MUCH PAY AT RISK?

Flat Salary 3%

1% - 15% 10%

16% - 25% 17%

26% - 40% 23%

41% - 60% 31%

>60% 16%

2011 CSO Insights

Sales Compensation and

Performance Management

Key Trends Analysis

@ErikChaz

HOW MANY MEASURES?

1 2 3 4 5

6 7

PERFO

RM

AN

CE

@ErikChaz

QUICK STEPS FOR PAYING THE HUNTER

Conduct a salary survey to set target pay.

How much of the target pay should be

variable?

Pick metrics to base rewards on

that meet corporate goals, focusing

on the most important one.

Check out how much you’ll spend on sales if

everyone makes quota

@ErikChaz

WE ARE GETTING BIGGER

@ErikChaz

THINGS ARE GETTING BIGGER – NEED A CAPTAIN

Have you promoted your best rep out of the field or

have you truly found a sales leader?

@ErikChaz

CAPTAINING THE CAPTAIN

If the entire team hits quota, what is the Captain’s

performance toward goal?

If the Captain hits their goal, where is

the company against plan?

Captains will usually assign higher numbers downstream in

case of a rep not performing.

Are there open positions in the Captain’s team? How does

the Captain’s quota reflect open positions, new reps and

experienced reps?

@ErikChaz

TURNOVER IS THEIR JOB

29

18.6%

22.2%

IF THE

MANAGER IS:

POOR REP

TURNOVER IS:

5.6% ON THE MARGIN

MISSING QUOTA

HITTING QUOTA

@ErikChaz

TIME TO SEPARATE SOME ROLES

@ErikChaz

HOW MUCH CAN YOU GET FROM THE TERRITORY?

Do they have the right personality?

What is the opportunity?

How much can the Farmer influence?

@ErikChaz

PAYING THE FARMER

How much will the Farmer make if the renewal rate

stays the same?

Is there room for customer abuse?

WARNING!

Calculate total payouts as a percent of total renewals

at different renewal levels, make sure that the

payments you will make to the Farmer are worth the

revenue and profits you will gain.

@ErikChaz

CHECKING THE FARMER PLAN

Make sure you know what line items in a

transaction reflect the appropriate renewal and up-

sell revenue the Farmer owns.

Don’t assign quota based on things the

Farmer does not control.

What periods should you track?

If all of your renewals are at year-end, a monthly

quota does not make sense. Try annual quotas

instead.

@ErikChaz

PRIME THE PUMP

@ErikChaz

NOW ITS TIME TO GET YOUR HUNTERS

FOCUSED

People not afraid of the phone

Will this be a stepping-stone towards becoming an

account executive?

@ErikChaz

STAKING THE CLAIM

Are you measuring lead quality?

Is your CRM set-up to handle passing leads to the

appropriate reps and tracking what happens?

Check:

What has lead flow been in the past?

Do you have the right environment for a

prospector to find new opportunities?

How many qualified leads are needed to become a

closed opportunity? How long does it take?

@ErikChaz

PANNING FOR GOLD

Do your prospectors develop their own lists or is

marketing providing assistance?

Is the plan incenting the prospector to deliver the right

types of leads?

Check the relationships between prospectors and

sales reps, and watch to see how many they can

support.

How much of the closed revenue do you want to pay

to ensure that only good leads are passed?

@ErikChaz

GET SOME EXPERT HELP

@ErikChaz

HOW COMPLEX IS YOUR PRODUCT LINE?

Combining knowledge and presence

@ErikChaz

SPECIALIST: DO YOU NEED THEM?

How technical is your product vs. your potential

buyer?

Is it a difficult demo?

Is the concept you are selling a new one to

prospective customers?

Will the support person need to respond to

competitive claims during demos?

@ErikChaz

PAYING THE SPECIALIST

The complexity of the product will increase a

specialist’s percent of salary consisting of variable

pay

Quota = combined quotas of supported team

members

Reward for other specialist’s activity, like fairly

supporting sales staff, helping move new products,

etc.

@ErikChaz

GETTING BIG – NOW SHARING CREDITS

1 DEAL

@ErikChaz

FINAL THOUGHTS

What are you trying to achieve?

Who is going to sell for you?

How much leverage and upside?

What are you going to measure?

When will you write the check?

Questions and Discussion

Our presenter answers

questions from the webinar

audience.

#hunterfarmer

Sales Cycle Length and Quota

How important is sales cycle

length in calculating quota?

#hunterfarmer

Compensation Cost Ratios

Is there a rule of thumb for

compensation cost of sales?

#hunterfarmer

Should All Salespeople Make Quota?

What percentage of

salespeople should achieve

quota?

#hunterfarmer