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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
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