Sales Planning Guide
This time of the year is critical to Chief Sales and Revenue Officers. So many things to do, so little time to do them:
- Close Q4 business
- Design sales model changes
- Review individual and team performance
- Top-grade talent
- Assign accounts and territories
- Review and refine sales compensation
This is a multi-part discussion on how to organize and motivate your sales team for success in the coming year.
Creating a great sales compensation plan is critical to focusing and motivating the sales team for success. It’s both a science and an art and – as they say in the movies – it’s complicated. Designing sales compensation plans are a delicate balancing act that should both motivate the team to maximize results while constructed in to allow the business to easily scale without breaking the bank.
Considering the following factors in sales planning and plan design will ensure a much higher probability of success:
Model revenue, performance and quota assignment
Corporate Revenue Goal Alignment
One very significant exercise involving sales, finance and HR is, before designing the upcoming plan, to agree on expected revenue objectives. Sales and finance should have equally weighed inputs and perspectives. Tension may occur when, totally apart from sales, finance creates a revenue and sales model that, while aligning with Board/Investor/CEO level growth models, isn’t aligned with market conditions and reality.
Team Performance and Quota Assignment
This exercise should be followed by analysis of current team performance. Systematic issues to consider in forming and finalizing both team and individual plans are current year performance, team turnover, onboarding time to full productivity for new hires and quota over-subscription.
Blaming underperformance solely on sales execution is common. Many factors contribute to underperformance including pricing and commercial terms, product quality, market climate and competitive threats.
Team turnover, time to hire and onboarding time to full productivity should be factored and balanced against quota assignment. The most current industry reports related to sales team performance state that current team performance is that roughly 60% of team members achieve or exceed quota expectations.
Factor in expected turnover and time to full value for new hires in modeling quota assignment. The “I hire industry thoroughbreds with great networks that can have instant success” and “let’s just increase our current reps’ quota” mantras and mentality simply doesn’t work.
Significant quota over-assignment should be factored – in the range or 30% – 50% to ensure a high confidence in sales revenue objective achievement.
Create an Aggressive but Balanced Plan
A sales-minded CEO that I worked for early in my career stated very simply, “You can’t have a healthy bottom line without a growing top line.” Many companies whose culture is dominated with a finance and/or engineering mindset and mentality consider sales a necessary evil. The facts are simple, pay too little and you won’t attract top performers, pay too much, it’s not sustainable for the long term.
Many of today’s successful sales compensation plans are modeled on a 40%/60% or 50%/%50% mix of base salary vs. on target earnings. Depending on situation, one may work better than the other. The premise with this is to have a balanced risk/reward between the company and the individual.
Keep it simple
Very simply, human nature and psychology says that people are motivated by what they’re rewarded to do. I get migraine headaches when I read compensation plans that are over a dozen pages in length, have very broad objectives and definitions of products, solutions and require a degree in calculus to calculate commission payments.
Plan objectives should be aligned with corporate objectives, clearly defined, standards for performance, aggressive but realistic, directly related to what they’re being paid to sell and how and when they’re getting paid.
Compensation plans should be very specifically aligned with the team’s and individual’s role within the company. Lead/demand generation, inside sales, outside direct sales and channels all have unique and different objectives, behaviors and revenue producing goals.
The quickest way to destroy sales focus and performance is to create a generic but overly complex plan that both confuses and frustrates individuals from their primary role of revenue generation.
Reward Over Goal Performance, Revenue Type and Quality
Rewarding revenue type, quality, timing are significant factors in motivating the team for success while accomplishing corporate revenue objectives.
Revenue type is important, particularly in balancing new customer acquisition, growth and retention. Many plans make the mistake of paying one rate, regardless of which of the three revenue types are involved.
New business acquisition and significant customer expansion (new major solution sales, major customer expansion, e.g., additional divisions, distribution centers, and so forth) are very important to long term growth and scale. Additional seats, servers, devices, services and other incidental and ancillary services in most cases are handled by and paid to either account management or client success roles.
Profitability of revenue is important as, with significant discounting, individuals both give away revenue and set a precedence for the longer-term relationship with customers and longer term corporate health. Significant attention should be paid to addressing both revenue profitability and discounting policies within the sales compensation plan.
Revenue timing is important for several reasons, the most important being overall corporate financial health, as well as staffing and utilization/realization of services and support resources.
Rewarding the sales team’s and individual’s ability to accurately forecast revenue, especially coinciding with month, quarter and year end should be rewarded over and above normal commission percentages. Bonuses, SPIFs and other time-based rewards are very simple, straightforward ways to reward behavior and achievement.
Over Goal Compensation
The target of any well-constructed plan should be to reward over-goal performance and motivate the highest population to be rewarded for exceptional achievement. Many plans are modeled with significant commission accelerators as well as other non-cash incentives such as equity and stock or club trip performance. Many companies incorporate a quota club reward as well as Chairman’s or President’s Council for the top 10% of the team. Stringent definition and levels of performance for these rewards should be outlined in the plan.
Regardless of how you structure your sales team’s commission plan, never — under any circumstances — place a cap on earnings and variable compensation. Doing so will remove individuals’ and teams’ incentives to “do whatever it takes” as well as create an under-performing sales culture and kill team morale.
In closing, sales compensation plans, in combination with a well thought through sales model, should be designed to attract and retain top tier talent, lower the cost of fixed cost investment in salaries, and accelerate healthy and profitable growth.
Rick Nichols is Managing Partner for TechCXO’s Revenue Growth Practice. See his full bio here.