In a recent conversation with a top sales executive, she indicated that her sales organization is expected to grow the business 15% in 2011 over 2010. When we asked, “where is that growth expected to come from”, her response was, “...don't know; but it's not negotiable!” This is the time of the year when many companies are involved with examining change to the sales compensation plan for the upcoming year. Given the particularly difficult economic conditions that many companies have experienced over the last 24 months, we thought that it might be helpful to re-emphasize the importance of “basics” when it comes to plan re-design. Thus, that is the purpose of this Short.
Before top management can determine how to use compensation to direct, motivate and reward its sales force to realize a competitive advantage, it must be clear about what it is trying to accomplish with the business. A company's strategy describes how management expects to compete for and win business with customers and, in turn, what its expectations will be of the sales force. Generally speaking, there are three themes to consider and each has different implications for the performance measures used in the plan – another important key fundamental.
1) Improve Sales Productivity. The principal way companies seek to improve their sales productivity is to realize more volume and profit from their current investment in sales resources. The alternative – reducing sales expenses, principally head count – is a short term solution; it ultimately penalizes a company through lost market share and slower growth than competitors.
If a company's business strategy includes improvement in sales productivity, one or more of the following measures should be included in sales incentive compensation plan design in addition to “growth”:
- New customer sales volume
- New product sales volume
- Balanced product line sales
- Reduced “churn” among current customers
2) Improve sales coverage of current customers. Regardless of industry, customers want flexibility, customization, faster response, and personalized service. To meet these requirements, market-leading companies continually improve the coverage to their current customers. Often this means investments in new ways to interact with customers. New sales jobs are implemented to replace or compliment traditional jobs in order to improve sales coverage of current customers. When this is the case, the measures used in a sales incentive compensation plan that is aligned with competitive advantage goals include:
- Overall account volume
- Greater share of the account's business
- Achievement of customer objectives
- More lines of business sold
- Account profitability
3) Grow sales overall. Since the first, and generally most important measure of business success is sales, business strategy typically emphasizes achieving top line growth. When this is the case, it is important to track the percent of sales realized from:
- New direct customers
- New distribution channels
- New products
In order to ensure direct alignment with the company's strategy for the next plan year, it is critical to understand the tactical requirements of that strategy, including a clear definition of the sales model, job charters and performance expectations of the customer coverage resources. The process for gaining and using that information should be completed prior to plan design, so that decisions can be accurately reflected in the new plans and the related systems and documentation can be developed.
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