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

Transparency

Physics question: What is the difference between transparent and translucent? Opaque and clear? Iridescent or luminescent?

We use descriptive “clarity” words in our everyday speech. But in business, if you talk about “clarity”, i.e. being transparent, there is a difference. It is supposed to mean nothing is hidden: all the financials and agendas are open and known, and the path which has been chartered by executive leadership is easily accessed, followed and understandable by all.

Now, let’s stop laughing and dry the tears from our eyes as we discuss what really happens in business–obfuscation, misdirection, subterfuge, and outright lying. I’ve held off posting for a couple of weeks as I was observing some first hand obfuscation at a client and dealing with it. Management, in this scenario, was opaque and misdirecting with its policies and procedures. Personal agendas seem to trump corporate agendas, and covert strategies appear in hindsight to have been executed to maximize some individual’s leverage and pay.

I know this sounds jaded, but sadly, many times it is true.

First, a couple of stories around the good and the bad.

The good first. My friend owned a business which started off from nothing. Three partners came together and started a recruiting firm. They did what most startup business owners do, they hired sales talent and paid with highly leveraged compensation plans, and as the reps hustled and the company grew, the reps watched their commissions come in. The commission plan worked for the first few years, but as the company’s original business shifted and it became apparent the original commission plan didn’t fit the new path, the partners knew they had to make a change.

My friend came to me for advice. He explained where they started, where they were going and what the company needed to do to remain profitable. (In a nutshell, they were a permanent placement firm which had shifted to predominately staff augmentation in a niche market.) He did some mild railing against some of the biggest abusers of the comp plan and told me about the partner’s plan to roll out new, individualized comp plans to each rep. Their focus was on crafting plans for the senior reps which didn’t completely destroy their current commissions and shaft the newer reps with a greatly reduced commission structure–a kind of “robbing Peter to pay Paul” scenario.

When I asked how they arrived at that, the essential answer was they formulated their plan in a vacuum. The partners had met with each other and hadn’t asked for any input from their sales reps, nor were they planning on discussing the roll out with them.

What I recommended was transparency. First every rep got the same plan. Second, was a disclosure of the company numbers on sales, revenues and margins. And third, an explanation to all the reps why the company had to change the plan.

My emphasis, more than anything, was to use data to justify the “why”. If three years ago permanent placements made 90% of the revenues and that commission structure made sense but now only 10% of the revenues were placements, then that is a change which has to be addressed. But to simply move the bar on the reps without explanation creates distrust and paranoia. “What are they going to take away from me next?” I told him the reps would say. And things like, “I heard the company is in trouble.”

Surprisingly, (but happily for me) he took my advice. They gathered all the recruiters together and showed them the numbers, the trends and the future path of the company. They presented a new compensation plan which was fair, focused on the new direction, and still allowed for equal income as before by incenting the desired sales path. And they promised a transition period during implementation. After three months, only one of the senior reps had left. And the company transitioned to their new model. In the end, they survived the transition to go onto their next phase which catapulted them from a boutique to a medium-sized business.

The bad story. I’m changing some of the details around this so as not to identify any business in particular.

A company I consulted for had been holding more and more closed door meetings. The president and the VP of Sales, or the Controller, or the VP of Marketing. Individual meetings, sometimes with some different combinations of the aforementioned people, but more and more meetings. Prior to this, the company had been relatively open about its numbers and direction. A new VP of Sales had been hired, and its executive team began having more meetings with themselves than with the employees.

Soon, territories were being realigned. Specific accounts were shifted from one rep to another. Commission plans were changed and private commission promises were made. “Covert” was the operative word. I was brought in to analyze their sales operations but found (and reported–ahhh, the beauty of the consultant…) that sales operations weren’t their dysfunction.

So, what happened? Implosion. When the level of secrets met with the growing dissatisfaction of the sales force, there was a screeching halt of productivity. Why, the reps grumbled, would they work in this uncertainty? And so they started leaving.

As I’ve stated before, there are a lot of individuals which make a company run, but sales is the engine. If you don’t have any sales, you don’t have any revenue. And without revenue, you don’t have a business.

This particular story isn’t finished yet, so I can’t wrap this story up with a bow on how the company had its happy ending. It is a work in progress, and I’m watching them closely.

So, these are anecdotes, and maybe you’ve seen something similar. But my point is, no matter what the size of the company, transparency matters. If people know what they are working for, and feel valued providing value to the company, then magic happens. If people work without trust, then they will always have one foot out the door. Which do you want? Which would help your company be its best?

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

Work, Working Hard & Work Ethic: The Non-Intersection of the Three

First off, let me discuss guilt.

Not your Jewish mother type of guilt (“You never call me.” “But Mom, I spoke with you two days ago!”)

Or guilt around felony like circumstances (you are on your own there).

But guilt around work and effort. Not in a high school physics sense (W = f*d), but time put in for tasks involved, and overcoming guilt around how much time is enough.

In sales, one could be working 24x7x365, because really, there is always something you could be doing, like more prospecting, more marketing, more networking, more customer touches…the list goes on. In this regard, selling is an endless job, allowing those who can’t say “no” to answer to their inner guilt and do “just one more thing”. A sales rep’s personal stake to produce has a lot of guilt tied to it. Add to it management’s expectations and this guilt boils down to time spent at work.

There are a lot of expectations, and being up to speed on your field of expertise is one them. One of the things which I do a LOT of is read. It is the primary method of finding out the what of my industry, not to mention the primary method of communication in my industry. But I have guilt when I am reading articles related to my industry, because it is taking time away from doing things with my job. But, my job is dependent upon me being up to speed on things on my industry, which in turn makes me a more effective salesperson, so I need to read.

Today, I read about “Work Ethic”. I’ve been following IS Survivor Keep the Joint Running since the 1990’s, and I like a lot of what he has to say, and this treatise is no exception. Then I read his post from 2004, and what I realized is my inner Jewish mother is killing me.

Work ethic

Working less for fun and profit

If I were you looking at the title of this post: Work, Working Hard & Work Ethic, the Non-Intersection of the Three I would wonder what I’m getting at, and if I’m just advocating being lazy. But I’m not–really!

What I mean is that you have a job. If you do your job, you are merely on cruise control. If you do your job and work at it diligently, then you are “working hard” and if you ask for other projects, even though they’ll cut into family time, then you have displayed what many would call a “work ethic”.

My problem with all this is comes down to expectation. If I am hired for a sales position and given a quota, then however I achieve that quota should be of no concern to anyone. If I achieve my quota with 20 hours a week of work, then my management shouldn’t care, they should revel in and repeat my results. But if I don’t achieve my quota and am working 50 to 80 hour weeks, something is wrong, especially if I’m closer to 80 than 50.

In my last corporate selling position, there was a lot of “busy-ness”. Endless amounts of time used on tasks which weren’t enabling. Paper trail tasks to CYA for management, along with endless troubleshooting calls for products which were still not ready for prime time. In the end, my colleagues and I estimated out of a standard 40-hour work week we were in some sort of corporate exercise for up to 30 hours. But the expectation was still to hit the numbers placed before us–a minimum number of meetings, training and prospecting. When I asked my peers how they were fairing, none of them had achieved the minimum expectations across all KPIs.* In addition, due to the number of meetings during the day, it meant most evening/nights and weekends were taken up with answering e-mails.

This was on top of an unstable culture which didn’t provide any psychological sense of safety (a topic for another post), so the feeling the hammer could come down anytime was very real. This means a lot of hours were put in under the thumb of uncertainty.

Okay, you say, enough grousing. What is the solution?

Lean processes. It is the focus of this blog and it just doesn’t go away.

There are many things which could have happened to alleviate the sheer number of hours logged, but the biggest contributor would have been expectations backed by data. How many calls should a rep be expected to make? How many meetings, physical or virtual, should a rep be expected to make. And if we set this bar, what data have we used for this number?

Let me run with the meeting idea: Let’s say the expectation is 12 face-to-face meetings a week. Each meeting lasts 1 hour. The travel time to and from the meetings we’ll estimate at an hour total. Planning and set up calls for each meeting I’ll estimate at 30 minutes (I’m being very light on this estimate, since some meetings can take a lot of time and innumerable e-mails/phone calls to set up just to get all the moving parts aligned), which totals 6 hours, and all in, our rep has 30 hours out of a standard 40-hour work week already spoken for. Now add in corporate overhead, like standing meetings, etc. (see above). If it was at 30 hours like I mentioned, then the total for the week is 60 hours. And this hasn’t included time for prospecting, marketing efforts, shows, lunch and bio-breaks.

If the rep has a family, then he is probably trying to shoehorn children’s events and/or spousal commitments in some of the interstices. And then, the inevitable opening of the laptop late night to answer e-mails before the start of the next day.

If expectations were set on data, even if the numbers were set north of where the current data resides, they would still be based upon something versus opinion.

Recently in a newsletter I received, the author talked about what your worst salespeople could be telling you. One of the first things which stands out to me is the average tenure of a rep. I’ve mentioned this as a statistic before in the regard to how disruptive this is to the continuity of selling. But in regard to this article, I think it misses the mark. I know some excellent sales reps and they aren’t leaving because they suck, they are leaving because management isn’t listening to them. When excellent reps realize they are being hamstrung by corporate BS, impacting their earning potential, they leave as quickly as possible. Then, the second thing which caught my attention was “2. That You Are Tolerating Underperformance” (his typo, not mine). The author pulls info from Selling Power magazine, and talks about managing the rep through setting milestones. Five bullet points about managing through milestones, but not once a mention of how those milestones were created. Without any data, the milestone is meaningless. I can set milestones (“Grandma, although your in your mid-seventies, go run a mile today with your bum knee. Today you do it in 12 minutes, tomorrow we’ll expect 10.”) but they don’t mean anything unless balanced against data: historical data, growth data and revenue data, to mention a few.

Suffice it to say, when setting up KPIs or minimum activity standards, you have to look at what is exceptional and what would be known to produce failure. Then, target the 80th percentile and see what happens. Tweak, tune, or scrap depending upon outcomes.

But don’t just spitball it. Because if you do, you will find yourself in a situation where people aren’t achieving your expectations, no matter what your opinion is about it.

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.

*If a company issues unattainable KPIs, then they are setting the rep up for failure, because if they wanted to get rid of the rep then they have the proof. Not a very ethical practice, but it does happen.

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.

Smart Sales Operations – Training and Expectations, Part 1

In the past when I’ve seen companies hire employees, there is an expectation from both parties as to what they need or want to hear.

For companies, they want to take the new hire, drop them into their new location and have them begin to sell.

For the employees, they want to have the new company give them direction, resources and maybe even a mentor so that they can get ramped up quickly and begin to sell.

The disconnect is all the communication in between which never happens.

During the interview there is a lot of selling going on. The interviewer is espousing how great the company is, and the interviewee is likewise espousing how great he or she is, and both interviewer and interviewee are engaged in a lively and intricate verbal dance of exposing only the positive while shielding from view any warts. Both want the same thing, to fill the role and be productive.

The issue comes after the new-bee is hired (my spelling on newbie) and what happens post-hire. Previously I’ve written my thoughts for on-boarding, and this described time frame would be in the period right after on-boarding. The honeymoon phase. Salad days, “Young, and fresh, and green.” Most companies take these shiny new hires and then hit them with the fire hose of information, scouring off that sheen of newly minted excitement and beating down the wonder of the new and the can-do. All this occurs under the watchful eye of their new manager. And while taking note of the new hire’s staggering under the fire hose blast of information, there isn’t a reduction to the informational onslaught, nor a catch-up or step back to see how the new hire has fared. For God knows, they have a training schedule…

So let me digress briefly to explain some of my philosophy. First, I was a high school chemistry teacher for a couple of years. One of the things I learned in my education classes was about Jean Piaget. Piaget was one of the first educators to theorize that children go through distinct phases in their cognitive ability. The student’s ability to learn certain types of material was dependent on what phase they were in, and the learner must go through each phase to reach the next (some of this has been proven incorrect in particular circumstances, but bear with me here). When an adolescent graduates from high school, they should be in the final phase of thinking processing and essentially be on their way to adulthood and logical processing. But, in reality, many of them are far from complete in every area and were still developing. They had been able to pass their academic tests and complete the work but that doesn’t mean they were able to truly utilize the information they were given. Second, learning happens over time, and it has been pretty well proven that an iterative, hands on approach will cement the information much more quickly than a one-off lecture (think computer-based training–CBT’s) with no practical follow-on.

I remember reading a study which found that information when first presented is freshest right after the initial presentation, and It’s memory will diminish almost exponentially over time. People remember best and most permanently information at its initial presentation, and strengthen that learning with periodic refreshers.  When they are newly hired, they are most open to new experiences and learning, which in turn lends to their ability to absorb information. But that doesn’t mean this absorption will be permanent.

The new sales hire is learning about so many things: the company culture, the company processes, how to book travel, how to submit expenses, how to work with the company CRM, how to work with their new manager, their co-workers–essentially, the infrastructure of people and process which surrounds them and creates their job: sipping from the fire hose about company processes, front office, back office, healthcare benefits, 401(k)s, on-boarding procedures, etc., in addition to learning about the product they were hired to sell.

That’s right, all this learning and we haven’t even really touched upon them performing the role for which they were hired.

All of these things are going on, and what is management asking for immediately? Their forecast.

What will be this new hire’s success window? Will they be up and running in a day? A week? A month? A year?

Anecdotally, I’ve seen most reps successful after about nine months. At six months they’ve learned enough about company culture and process to get things done, as well as enough about the product or service which they represent to be dangerous, which means they have begun engaging prospects and customers and building a funnel/forecast.

Here what I find most interesting: studies show the average tenure of a technology sales rep is somewhere between 18 and 24 months. Think about that–they only learned about the company and products just shy of a year, and just shy of their second year, they leave. Basically, they have six months of good selling. As I saw pointed out by another blogger, the company is essentially trying to make their money on a rep in six months. Which creates a pressure-cooker situation.

And leads to question: why do they leave? We can spitball tons of anecdotal reasons, and they are numerous, but the biggest one is the rep doesn’t feel they can be successful. How many impediments have been put in place to overcome? If the company is looking at making quota as the only measurement of success, how does that translate as to what the rep sees as success? Especially if the statistic is true that only 58% of reps make quota. If a rep sees a mountain to climb knowing he or she wouldn’t be successful, would you blame them for looking for a new mountain?

So, what is the take away? If the company is going to invest in the rep, then they need to invest in their success. If training is required, it needs to pertinent and poignant. It needs to be applicable and retrievable. It needs to make that new hire into a successful sales rep–not just for the company, but for the rep as well.

Because if the rep is successful, the company will be successful.

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.

Smart Sales Operations – Target Revenue vs. Quota

Picture this: in the annual shuffle at beginning of the year, territories are assigned, accounts are assigned and quotas are assigned. If one were to watch the man behind the curtain as these machinations were being performed, I’m sure the wizard would look more like a butcher, with his sparkly robes and wild hair replaced with a bloody apron and a dangling cigarette.

Why do I say this? Because many times to the sales rep, coming up with a quota number seems to be an exercise in capriciousness. As an example, I’m reminded of one of my sales positions where I didn’t receive my quota until April. Yes, after the first quarter had already passed! Then, once I had received my number, I was puzzled. How did they arrive at this number based upon the history of previous sales and sales in the territory?

Here is where the magic came in. Using figures published in business journals, Hoovers, D&B, etc. (…some source…), my company would take the target prospect’s annual revenue and estimate the percent of that revenue which would have to be spent on our product category. For instance, if the prospect was $100MM, then 10% or $10MM was going to be spent on IT related purchases. Based upon that, quota would be set at a percentage of this estimate, and this dollar amount was additive to create my total quota.

Seems harmless, right? Well, it’s not, which is why am I mentioning this as a Sales Operation issue. At its best, it is merely hopeful. At its worst, it is inaccurate and misleading–to the company and the rep. Let’s give some examples: a form being printed for a telecom company, and computer equipment purchased by a steel manufacturer. For the first example, while many large companies still have some paper forms, most have been digitized or obsolesced so whatever historic data one is using to arrive at that figure, it is always representative in arrears of actual use. To base the revenue on a declining number will only lead to inaccurate results and the rep’s quota is being based on unachievable numbers. Let’s look at the second example. Does a steel manufacturer buy computer equipment? Yes! But where is the primary investment for the steel manufacturer? In the making of steel! Which means the percent of revenue number used for quota isn’t representative of what the customer is purchasing. Will the steel manufacturer buy computer equipment? Yes, but more than likely on a three-to-five year cycle, not on an annual basis, and it’s computer equipment related purchases will be more along production systems, not desktops.

What quota setting like this creates is false hope for the company. It is akin to looking at all the accounts in a territory and thinking about how many potential customers you have and how much money each one has to spend–kind of a land grab mentality. It doesn’t focus on the actual fact of what, dollar-wise,  has the customer actually purchased in your sales vertical. In my observations, in outside sales the average rep can handle about 50 accounts. Assigning a territory of 3000 accounts with accompanying quota may seem like a favor to the rep, but what it really does is dilute effort. As a corollary which I feel is applicable, there have been psychology studies showing when a consumer has more choices it actually leads to fewer decisions. So when rep has 3000 accounts, it seems as if the world is their oyster, but in reality they will only be able to actually service a fraction of that, and of the fraction serviced, only a fraction of that will be really good customers. For example: There is a Value-Added Reseller (VAR) I’m very familiar with and know they limit their top reps to no more than six accounts. Six! But what is amazing, is the good sales reps are able to generate fantastic amounts of revenue off their six accounts because they are focused on penetrating and selling their entire portfolio of products and services. To counter this observation, I have seen a senior rep working for another VAR who was allowed to cherry picked the top producing accounts from other reps, and had more than 300 accounts in his stable. He mostly sold those accounts renewals, and because he was stretched so thin, these accounts were always being courted by other companies. Last I heard, his methodology was backfiring with the majority of his customers complaining they never saw their rep and going to other companies whose sales reps were more available and paid more attention to them.

So back to quota estimation. Looking at what the territory will potentially produce, how many Fortune 500 accounts it contains, etc. doesn’t shed any light on what the territory will actually do. It comes down to data. If the company is starting in a greenfield territory, some of the planning data and analysis can be helpful, but holding the rep to imaginary numbers is like dividing by zero. In an established territory, looking at historical performance as well as the company target will be more insightful than speculation.

The critical factor in all of this is ramp up time and traction. It has been estimated it takes a technology sales rep 9-18 months to ramp up properly and be running on all cylinders. If the company allows the rep to build their pipeline, get some wins and move towards really owning the territory, then both the rep and the company will have success. If the company saddles the rep with an unrealistic quota and a short ramp, they will be looking for a new rep in short order and be repeating the same cycle of onboarding–which means another unproductive rep (also known as an unprofitable rep).

There are more and more tools coming out every day which help companies automate the establishment of quotas and commission plans but most of these look at sales in the traditional way: set quota high, and only pay well for over achievement. They tend to look at one size fits all, and every territory is the same.

So take a step back when setting quotas and find some real data. Look at the company’s targets through realistic eyes, and then when setting a quota remember if your sales rep is successful, the company will be successful.

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

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

Smart Sales Operations – Setting Quota

Quota.

It is a loaded word, with multiple meanings and connotations for the speaker and the listener. It can be a source of frustration, relief or consternation. It can represent a perspective of hope for executives or a perception of sham for sales reps. Quota embodies a notion of achievement for performance, but many times the reward for performance is not well thought out in relation to the effort for achievement.

Daniel Pink in his book Drive talks about the how the quota/performance system is broken. How only in sales can someone work to achieve a goal and be told to achieve more the next time–essentially never getting a rest or recognition for a job completed. And while I have worked for sales companies who have tried to create reasonable quotas, I’ve also worked for companies who used a dart board for quota setting. In Drive many of the reasons for this appearance comes from the arbitrary feeling of quota setting aligning with the seeming capriciousness of company goals. The disconnect of tying these to the rep’s quota creates ensuing chaos. Admittedly, I will be coming back to this topic a lot since sales, quota and operations are tightly tied together, but this is my first swag at it–with a lot of anecdotes to start the ball rolling.

First anecdotal evidence…A friend of mine was hired as a sales representative into a territory where every previous salesperson had foundered and missed the company set goal. And, hand-in-hand with this, each of the previously failed reps ended up having a tenure of just over a year. He found the position because he had worked with the hiring manager years before, and they both agreed it would be a great fit for his skills so they signed him up. Braced with the knowledge of his predecessors and hoping the relationship with his manager would help temper the company’s prior foibles, when it came time to establish quota he figured the company would be reasonable. Nope. The target number came back doubled over previous year’s number; more than twice the revenue the territory had ever produced. In a territory which had struggled to produce $2MM in revenue, they set his plan at $5MM. After he picked his jaw up off the ground he asked why.

“Because we feel the territory can support it.” was the response. Huh?

By setting the my friend’s quota at a ridiculously high number, the company sent two messages without really realizing it. One, start looking for a job because you are going to fail, and two, we aren’t really paying attention to what’s going on inside the territory, only what’s on our spreadsheet of territory revenue estimates. A third possible message was, Oh, and we have to meet Wall Street’s expectations and you’re replaceable, so…here you go.

What this quota lacked was data. It had a lot of speculation and expectation, but up to that point in time, none of the speculation actually was accurate nor was the expectation being achieved.

At another company, quotas were set by looking at the prospective revenue spend of companies. If a prospect was a $100 million dollar company, then based upon “industry norms” it would spend 10% on products sold in the target category, which translated to a potential for $10 million dollar spend. Therefore, the thinking went, this prospect will potentially spend $10MM dollars this year and we should be able to sell them something.

This method is equally flawed, in many ways, and which I’ll expound upon later.

So, how do we start to align commissions with revenues? In my sales operations consulting, I’ve worked with companies who know the amounts of revenues they want to generate, but don’t understand what it might take to achieve–be it through sales efforts, marketing efforts, revenue incentives or commissions accelerators–they start from the wrong side of the equation to add growth. How? They look at the previous years revenues and say, “We want to be 10% bigger next year.” and then figure out how to distribute that burden among its sales people. What they should be doing is looking at it from the other side of the problem, since right now the company doesn’t know how to articulate the direction needed to set the revenues which creates the margin to set reasonable quotas. Meaning, they haven’t looked at their data to see where they should focus.

For example, if I was a $10 million a year company selling services and I was ready to bring on a rep, what would I focus on? On my data! First, I would analyze where my revenue in services was actually coming from as it might surprise you (the “what”). Next, I would analyze who and/or how those services were won (the “why” and the “how”). Was one rep particularly successful? Did the owner do it? Did the sales come through other channels? This matters, because figuring out where the seller is having success can fuel the enablement of methodologies to exploit that capability.

Let’s say it is a small business and the owner is the best sales rep (as is the case many times in small businesses). Making the owner’s abilities reproducible is critical to future growth. So teaching the keys to the owner’s successful selling will be very different than if the owner is looking to exploit a market segment or expand the business outside of its normal bounds. And analyzing the data would reveal this trajectory. From there I would look to see if there is any history or precedence for the sales being won to then calculate what I might expect a new rep to do (e.g. relationships, negotiating, etc.).

Ultimately, the purpose of hiring a new rep is to increase the company’s revenue. Which means the rep’s purpose is to sell and have the rep be successful–and by our current metric this means make quota. If the salesperson is struggling to meet quota, and the analysis hasn’t been done, the company will more than likely be doomed to repeat their sins when it brings on the next rep. When one adds in the cost of on-boarding, training and ramp-up time, it is too significant an investment to then just cut bait . By scrutinizing the needs of the job and really understanding what the expectation is for the salesperson, a quota can be set which allows the rep success and the company success. Some may read this as too indulging, but I would rather plan for success than be in a continuous mode of failure and clean up.

Because if the rep is making money, the company is making money. And that is success.

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

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