Tag: Setting quota

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.