Revenue Archives - Thinks, Inc.

Are You Coin Operated?

To date, I’ve heard so many people in sales use the phrase, “I’m coin-operated!” And, they are implying they are merely driven by cash–the cash which is provided by selling more. This saying has been bandied about so much that I don’t think those who say it really understand what they’re saying. As if cash were king for why they do what they do.

But, if you really sit back and think about it, the saying actually is the antithesis of what it is purporting.

“Coin-operated” really means if you put money in, you get something out. It really would be better aligned with doing some sort of piece-work labor, like sewing clothes or making shoes. Coin in, shoe out. Or making one of those children’s toy horses at the store front run–put coin in, horse goes, “Nay!”

In tech sales, that piece-work model really doesn’t make any money. If it was coin-operated, then I would be making more and more as I put more effort in. Sell more widgets, make more money. But compensation plans are still being crafted like they were at the turn of the century, last century, that is circa 1900. If I set your quota at $1MM, then when you achieve that number you should make whatever was agreed to. But if I achieve $1MM, and then you raise it to $1.2MM, I’m not coin-operated, I’m effort operated. I’m the reverse of the phrase.

In the end, it has been shown that incentive based compensation has limitations. If you want your reps to work for you instead of against your plan, then you need to compensate them in a way which recognizes what goes into the sale.

Strive to achieve that end. Don’t work at building hurdles and obstacles into a plan to make your reps work harder. If you build in disincentives, then you aren’t working at getting more business, you are working at getting rid of your rep.

In the end, the goal should be to make the sales rep successful. Moving target quotas, territories or account lists doesn’t enable that.

Think carefully when crafting a compensation plan about what behaviors you are trying to reward. Is it new logos? or renewals? or account penetration?

Many years ago I listened to a conversation between Jay Abraham and Tony Robbins. I remember my brain lighting up listening to Jay speak because he confirmed everything I had already deduced to be true in the connection between sales and marketing.

The specific tie to this post though, was in regard to customer acquisition versus customer retention. Currently, when I receive notices from recruiters, all of them say “looking for a HUNTER” (caps optional, depending on the recruiter). Now, when it is a new company with a new product which is reaching out into a new territory, the idea of a hunter sounds like just the ticket. Get some guy to go and bust down doors and beat the crap out of a customer so they buy.

Let me throw out an idea. Hire an established farmer.

What? Blasphemy! (That’s you talking, not me.)

Why would I propose that? Because if you hire a farmer who has a sizeable network of customers he’s dealt with over the years, then he has a much better shot of getting a meeting with a potential buyer than someone coming into the territory unknown.

It’s just a thought, but it might prove better than hiring a rep knowing that he is going to put A LOT of effort into finding prospects, only to probably not meet his quota. He’s going to put in a lot of coins before he gets operated.

So look at how you are approaching your market and how your rep is going to make money.

Because, if your rep is making money, then the company is making money.

Thinks, Inc. is a consulting firm which specializes in Smart Sales Operations. If you’d like for us to come and assess your chaos, drop us a line at contact@thinks-inc.com

Incentive-Based Selling: Are You Incenting? or Dis-Incenting?

In many a post, I have presented a lot of info and asked a lot of questions around compensation.

My many-a-time rant tends to focus on retaining talent and fairness, and the sales rep’s ability to achieve quota and earn commissions.

But there is a problem in River City, and it doesn’t rhyme with “p”. It is in how incentives are being crafted.

Recently, I attended a webinar about Crafting Commission Structures sponsored by Datafox. The webinar had two presenters, one from Zendesk, the other from Salesforce. Both of them were in the position of crafting compensation plans for their sales people.

First, the positive parts of the webinar: It was brief, focused and insightful. The speakers were articulate and informed and presented well. As a matter of fact, they probably don’t even realize they said something which annoyed me!

What did they say? Without realizing it, they said compensation plans were crafted so only a percentage of the sales force achieved them.

Let me back up and explain. Research has shown selling compensation models, i.e. quota attainment models, are actually dis-incenting to sales people. In my observation, for highly paid technology sales people, the typical scenario is a sales rep achieves quota one month (or quarter/semi-annually/annually) and are then reset to zero starting with the new compensation period. It is a Sisyphean task: sell, sell, sell and then get set back to zero. Daniel Pink discussed in his book Drive and in an article for the Harvard Business Review how this type of sales methodology doesn’t use intrinsic motivation to reward the rep and actually can dis-incent the rep since they never achieve a true finish line. His analysis created a significant backlash from those who said (IMHO from an emotional perspective) he was wrong (see this example, a person whose living is made off crafting sales compensation).

There is some truth in the disagreement, and I don’t deny that. But where I see the problem lay is in the quota itself.

In the area of sales with which I’m most familiar, information security sales, the advertised On Target Earnings (OTE) for outside sales positions is usually north of $200k. While I know several reps who earn and have earned considerably higher than this, I also know several reps who haven’t made quota, and here is why I have an issue–the truth is they were never supposed to make quota.

Based upon the Zendesk Senior Sales Compensation Analyst,
Strategy & Planning, Caitlin Ferson, the expectation is that between 40-60% of sales reps will achieve quota. Her explanation is that with current OTEs hitting such high numbers, quotas are being designed with an (implicit) expectation of failure. Which means 60-40% of your sales reps WON’T achieve quota.

Does anyone see a problem here?

My mantra of “If the sales rep is making money then the company is making money” is based upon the idea that the company is compensating the rep FAIRLY. Planning for a sales rep to fail so that the company doesn’t have to pay them is, quite frankly, immoral.

The company should be planning fairly for salary + incentive = achievable target for earnings. If it isn’t achievable, then don’t advertise the position for hire.

A great compensation plan is one where the rep achieves quota, receives commissions, and the company earns revenue. Call it simplistic, but it works.

Thinks, Inc. is a consulting firm which specializes in Smart Sales Operations. If you’d like for us to come and assess your chaos, drop us a line at contact@thinks-inc.com

Commissions – Fair Compensation

In the levels of Sales Operations, behind streamlining the selling of products and services and then getting paid, a perennial topic discussed with my peers is compensation. And, sadly, most of it is negative. The usual stories fall into similar categories: the comp plan is unreasonable, the territory unmanageable, the accounts duds, management doesn’t get it, etc. And while sometimes what they complain about really isn’t an issue, it is amazing to me HOW companies pay the people who actually provide the foundational cash to keep the business running and the lights on. It baffles me that leadership regularly declares it wants, no, demands excellence, and then strategically and negatively manipulates those very incentives which they believe lay out a path for the sales person to achieve that excellence.

Where am I going with this? First, let me back up and talk about balloons.

Many years ago, one of my brothers had a drinking buddy who did well financially. He pulled in great money and had a nice lifestyle. People were always chiding him that he made his living off a bunch of clowns. When I probed why they would say this, I was told he sold balloons and was one of the top sales people in the region. As usual, this sets my thoughts turning about sales and the processes of sales, and I realize 1) people are needed to sell anything–from balloons, to computer hardware to fake vomit. For every product, there is someone out there selling it. And 2) there is someone who is doing it well and getting compensated well for it.

Back to the story…the rep had been successfully selling balloons for years. New management came in decided they paid their sales people too much, so they changed his compensation plan. After deflating his metaphorical balloon, unsurprisingly to an outside observer, management sees he was suddenly no longer selling as many balloons. Management decides this is a sales performance issue, and eventually the two part ways. The company’s onetime top rep is now no longer with the company, and, again unsurprisingly, soon afterwards the company was struggling financially.

What happened? While I don’t actually have the skinny from inside the company, my guess is a newly hired executive looked at the rep and thought he made too much money. Or maybe, because I have seen it happen, didn’t like that the rep made more than him. So, to stop this egregiousness, the company structured his plan so they captured more profit and paid the rep less. In essence, they dis-incented the rep.

Story number two. Top rep in the company year over year. The rep continues to sell more, and the company continues to pay more. This continues year-over-year for his tenure. At one point, the sales rep’s revenues represent over 10% of the companies annual revenues, almost $100MM, which on his own would make him a medium sized company. In his last year he is paid exceptionally well on his sales of $100MM, and then a management change occurs. The previous year, the rep’s quota had been set at $75MM, and even he will admit, because of external circumstances, two of his customers represented about 80% of his number. The other 13 customers represented the other 20% of the $100MM. He hit and exceeded the accelerators the company had put in place. He literally “cleaned up”. So, begin this year, with new management and a new plan and what did they do? They raised his quota to $100MM, and (!) cut his On-Target-Earnings (OTE) by half. They have actually dis-incented the rep to work harder–essentially saying his effort was worth less this year than last.

Companies are in business to make a profit, and they need to compensate their salespeople to sell more, not less. Capping plans, creating barriers to success through complex percentages on sales, negative compensation on not meeting minimums do nothing but create bad blood among the people the company relies upon to provide revenue.

Sell more? Get paid more. That’s incentive. No fine print, no caps.

One more story to hammer this home…My wife’s grandfather sold for a paper company starting back in the 1930’s. He was old when I met him–88 and not as spry–but he was a legend among his friends for his salesmanship and his golf game, and there were some pretty legendary stories about him. Being an incredible salesman, it is said he sold ten times what his nearest peer did, and also made A LOT of money. A LOT. (Apparently at one point he belonged to three country clubs being the avid golfer he was.) One day, after a particularly good month, the president of the company came to him to personally deliver his commission check.

The president was apparently fidgeting with an envelope in his hand. He leaned over in a very patriarchal way and said, “George, I just want you to know that this is A LOT of money.”

George laughed while removing the check from the president’s hand and politely responded right back, “Sir, that means I sold A LOT of paper.”

And he was right. He sold a lot of paper, and he should be paid for it. Unless I’m misunderstanding it, the more paper he sold, the more profit the company made. The president shuffling over to tell George how much money he was “giving” him implied that he was somehow doing George a favor. And really, it was George who had performed the favor for the company.

What’s the takeaway from all this? Pay your reps–if you practice incentive based compensation, then don’t forget the more they make, the more the company makes.

As Smart Sales Operations go, setting quota is important, and I will be covering that topic periodically, but the reason for a quota is not to set expectations on how your reps will be paid, but to set expectations on how much money the company should make.

Look at how you compensate your sales people and earnestly evaluate if you are compensating them in the company’s interest, or theirs. There is a delicious, soft chewy center for both.

And remember: If the sales rep is making money, then the company is making money.

Thinks, Inc. is a consulting firm which specializes in Smart Sales Operations. If you’d like for us to come and assess your chaos, drop us a line at contact@thinks-inc.com

How Lean is Lean? When Do I Quit?

In my humble opinion…

Great words to start a post, eh? But the fact is, most of business and business process is based upon opinion. It is like a very loosely constructed scientific experiment with no great way to prove a hypothesis except with 20/20 hindsight. So when I speak of Lean in this post, it covers a lot of different ways waste and efficiency have been tested in business, but also tries to show when the experiment might be over.

From my perspective, there are two things to remember about lean practices in an organization: 1) Lean implementation is meant to take out the waste all organizations suffer from in the implementation of their manufacturing or intellectual processes. 2) Lean is like an asymptotic function and will never be “completed”.

It is this second point which I want to focus on today, the “never completed” idea. Let me set up a few scenarios for you:

Manufacturing: Elimination of muda across a production line over several years. Success has been demonstrated, and returns are harder to come by/prove, but management is still driving for 5% annual improvements. When does this cross the line from improvement to impossible?

Purchasing: The elimination of excess spending is implemented, incenting the purchasing department to challenge spending and vendor costs. Typically the more purchasing “saves” the company, the higher the bonus Purchasing receives. After years of paring down costs, vendors and excess spending, the parameters originally placed still exist, making it harder to show percent savings. Purchasing has completed the task but are required to continue to show the same result.

Sales Effectiveness: The sales processes put in place to bring all sales representatives up to minimum quota levels have been implemented, but as the goal attained, but process remains in place. In a normalized distribution, the best performing sales reps remain, but the distribution is so tight that even A-players are at risk for remediation.

The problem with all of these is there comes a point where the goals of the original program have been achieved (or nearly achieved–see asymptotes, above), but the program or initiative which was implemented remains in place. Not only the program, but also the infrastructure of people achieving their goals and objectives. Which means this becomes a hard beast to kill once the objectives have been reached since someone has taken ownership or is responsible for the program (a little job protectionism…).

Anecdotally, let’s take purchasing…from a sales perspective, the purchasing department is the enemy (I’ll get to the reason why in a minute). From the executive suite perspective, the Purchasing Department is a tool to leverage or recoup margin by driving down spend. To incent the purchasing department to do this, typically they get paid on percentage saved. Let’s use a paper purchase from Dunder Mifflin as an example. DM provides paper for the company and Purchasing has been tasked with reducing office paper costs. DM has a three-year contract to supply paper to the company and when the contract comes up for renewal, Purchasing negotiates a 5% reduction in overall price based upon an achieved volume. Now, whether this is really a company savings or not AND whether this is really a hit to DM’s bottom line is to be hashed out in details which aren’t relevant for this example. For now, let’s assume Purchasing has achieved its goal, so that 5% is represented back to them in some form of bonus, either to the group (less common) or to the manager (more common).

Buoyed by this success and newly realized profits, the company CEO declares ALL vendors will undergo a 5% price reduction, enacted every year, from now on.

Now let’s pause for a second and think about some of the consequences which could happen. If we are buying a physical good, there is a floor which the vendor cannot go below, since there is a hard cost in the goods. For services, there is a floor which the service provider cannot go below, since the service provider has to pay for the people who provide the service. If I ask for a year-over-year reduction of 5%, the vendor will have to remove some level of profit from their margins, and if they do this…

What happens? If it is a physical good, after a while, there will probably be a degradation in quality. If it is a service, then there will be a degradation in the quality of service (e.g. a cheaper resource, usually less experienced, as a replacement for the experienced resource).

So, cost cutting works in its initial phases by trimming excess spend. But in a long cycle, it is not a sustainable practice. The program quickly reaches its asymptotic limit (and usefulness), and great results have dribbled to almost results.

So why is Purchasing the enemy of Sales? Because Purchasing is missing a key component in its evaluation for cutting costs: Value.

If Dunder Mifflin provides only paper, then it is easy to say they can be replaced by any paper provider. But if DM provides 24/7 onsite service, free tech support for paper jams, whatever, then these value-added services can’t be evaluated for cost in a 5% reduction.

Recently I was discussing this with one of my colleagues, and where we saw the disconnect was ensuring Purchasing knew where the value was in the chain. Yes, Purchasing can drive price down, but if Vendor A has provided value up front, be it in consulting, configuration or evaluation, then they need to recoup that cost. Looking short term and purchasing from Vendor B may provide a lower initial cost, but there is a high probability Vendor B can’t match Vendor A in value.

This delta in the intrinsic idea of value is critical. Value separates the experts from the wannabes and quality manufacturing from defects. It is intangible but tantamount to excellence.

There is a story which I haven’t been able to track down, about General Motors many years ago. Apparently the CEO at the time told his suppliers they were going to cut their costs to GM by 2%. The thing is, telling them to cut 2% might sound trivial, but as we all know, this will flow down hill. The quote I remember from one of the equipment suppliers, and I’m paraphrasing here, was GM would get their 2% reduction in price, and a 20% decrease in quality. And they did. The problem is you can tell someone to cut their price (I’m so tired of hearing, “Sharpen your pencil.”) but the company you’re buying from still has to make a profit. If you put them in a situation where they can’t make a profit but are obligated to supply you, they will figure out a way to find that profit, and it probably won’t be to your advantage.

So, in the end, think about programs which look for perpetual improvement. If it is something where this can be applied, by all means do so. But if a program has run its course, put it to bed. There are other things which need streamlining in your organization.

Thinks, Inc. is a consulting firm which specializes in Smart Sales Processes & Operations. If you’d like for us to come and assess your chaos, drop us a line at contact@thinks-inc.com

PS The Infrastructure Guy and Smart Sales Operations are Trademarks of Thinks, Inc.

Smart Sales Operations – Pipeline vs. Estimated Revenue

When I began speaking about Sales Operations, I mentioned there is some bleed between selling and sales ops. One of the critical pieces which companies focus on is pipeline. Where sales and Sales Operations depart, is how pipeline is used to estimate revenue and revenue is used to determine pipeline.

What do I mean? With a few employers, when I entered in an opportunity and my estimation of percent completion, the company then provided a calculated revenue equivalent for the opportunity.

For instance, if I identified a $100,000 opportunity, and was in the initial stages, having maybe had an introductory meeting, I would set the probability at 10%. My employer shows revenue of $10,000. As I progressed through the sales stages, the probability would increase, and so would the estimated revenue, for instance at 40% equaled $40,000.

There is a problem here though, because this IS NOT revenue. It is pipeline. By forecasting revenue dollars inevitably the company would begin looking at this number as real dollars–essentially “counting chickens before they’re hatched”. This, in turn, would lead to greater pressure on the rep to close the deal. And if the deal fell through, which does happen to deals, the company would go into a tizzy. No wonder reps sandbag their deals…

When I’ve asked different companies why they do it this way, they explain it is for budgeting purposes, resource planning, etc. Okay, I can understand the need for planning for resources and budgeting, but it shouldn’t be done off of imaginary numbers. If anything, it should be planned using pipeline probability. A $100,000 opportunity with a 10% chance of closing doesn’t represent $10,000, it represents ZERO dollars and a chance at $100,000 dollars! If the deal proceeds down the pike and gets to 70%, 80%, even 90%, it still represents ZERO DOLLARS.

As a tangent, this mentality is seen in the statistical situations. If you ask anyone what the likely outcome would be if they flipped a coin 10 times, they would say five heads and five tails. But if they are flipping the coin themselves and run into a streak, say, heads four times in a row, then instead of using statistics to predict the next toss, they use their human math and predict what the next toss will be. The problem is, statistically, each toss is 50/50. It doesn’t matter if there has been a streak of heads or tails, as each toss isn’t dependent upon the previous toss or the coming toss, only the current toss. Prediction doesn’t cut it.

Why am I so emphatic about this? Because if pipeline is set up this way, it creates a situation for management to scrutinize deals farther along the pipeline as needed revenue, without considering–among so many other things which can sink a deal–competition or buyer indecision. If you’ve sold before, then I bet you’ve had a customer sit on a deal decision for many months longer than expected or you’ve lost in the eleventh hour to your competition. These things happen to even the best sales people. But to be on the hook to management for a deal which doesn’t close because management is forecasting revenue, well, that’s just bad accounting. Not bad selling.

In Smart Sales Operations, Pipeline Percents represent confidence–how much confidence does the sales person have that a deal will close. Based upon that, estimates of potential revenue are either shown at 100% or nothing. If a company is trying to use some sort of percentage to allocate resources, then it should take the quote which is in consideration by the customer coupled with where it stands in the pipeline, and forecast resource availability. This is a topic within itself, but suffice it to say, resource availability is significantly different from estimated revenue–and I can’t bill my resources against estimated revenue. Only real revenue.

And if it hasn’t been sold, then potential revenue equals nothing. Once it’s been sold, it becomes real revenue.

Last, remember once you have real revenue, then the deal is truly done when the business gets paid real dollars–and the rep gets paid commission.

Thinks, Inc. is a consulting firm which specializes in Smart Sales Operations. If you’d like for us to come and assess your chaos, drop us a line at contact@thinks-inc.com

PS The Infrastructure Guy and Smart Sales Operations are Trademarks of Thinks, Inc.