Exploring New Territory The Geography of Compensation Planning

Save this PDF as:
 WORD  PNG  TXT  JPG

Size: px
Start display at page:

Download "Exploring New Territory The Geography of Compensation Planning"

Transcription

1 Sales Management Association Webcast Exploring New Territory The Geography of Compensation Planning 18 March 2015 Presented by Copyright 2015 The Sales Management Association.

2 About The Sales Management Association A global, cross-industry professional association for sales operations and sales management. Focused in providing research, case studies, training, peer networking, and professional development to our membership. Fostering a community of thought-leaders, service providers, academics, and practitioners. Learn More: The Sales Management Association. All rights reserved. Slide 2

3 Today s Panelists #SalesComp 2015 The Sales Management Association. All rights reserved. Slide 3

4 Sales Management Association Webcast Exploring New Territory The Geography of Compensation Planning 18 March 2015 Presented by Copyright 2015 The Sales Management Association.

5 Agenda Sales Planning Today Aligning Sales Plans with Corporate Objectives Unstoppable Sales Performance Framework Anaplan Customer Case Study Defining Optimal Territory Planning Various Levels of Territory Planning Practices How Sales Compensation Supports Territory Planning Use of Absolute Commission vs. Quota Based Plans Better Sales Comp (BSC) Case Studies Where Compensation and Territory Planning Go Wrong 2015 The Sales Management Association. All rights reserved. Slide 5

6 Critical to Get It Right and Keep It Right $100M Company Improved Sales Territories, Quotas & Incentive Compensation 5% to 10% of Annual Sales as Lost Opportunity that could have been captured through improved Sales Planning S p e n d 50% less time 7 X l e s s e x p e n s e Source: Gartner. $5M to $10M Lost Annual Sales Revenue Anaplan. Used with permission by The Sales Management Association. All rights reserved. Slide 6

7 Sales Planning Today A BROKEN LANDSCAPE MARKETING IT SALES Limited Scale & Collaboration Misaligned Plans HR No Trust in Data OPERATIONS No Audit & Controls FINANCE Resource Intensive 2015 Anaplan Slide 7

8 REALITY & MINUTIA Improving Sales Performance is a Constant Struggle SALES Manual processes and spreadsheets Changing priorities in corporate objectives Legacy systems that are not flexible Increasing complexity in sales processes Inability to adapt to change and disruption No modeling & planning solutions (What-If Scenarios) Data stored in disparate systems (CRM, ERP, HR) Lack of collaboration across the enterprise/stakeholders Visibility of accurate sales data (i.e. forecasts, historical) Many other challenges 2015 Anaplan Slide 8

9 REALITY & MINUTIA Improving Sales Performance is a Constant Struggle Corporate Objectives & Alignment NEW CUSTOMERS ACQUISITIONS CROSS-SELL & UP-SELL OPPORTUNITIEs RETAIN EXISTING CUSTOMERS NEW PRODUCT LAUNCH GLOBAL REACH INDUSTRY VERTICAL EXPANSION 2015 Anaplan Slide 9

10 REALITY & MINUTIA Improving Sales Performance is a Constant Struggle Corporate Objectives & Alignment NEW CUSTOMERS ACQUISITIONS PLANNING & MODELING ACCOUNT SEGMENTATION PLANNING EXECUTING CROSS-SELL & UP-SELL OPPORTUNITIEs REVENUE PLANNING RETAIN EXISTING CUSTOMERS TERRITORY PLANNING SALES CAPACITY PLANNING NEW PRODUCT LAUNCH QUOTA PLANING GLOBAL REACH INDUSTRY VERTICAL EXPANSION INCENTIVE COMPENSATION PLANNING TERRITORY CREDITING PROCESS QUOTA ATTAINMENT PROCESS INCENTIVE COMPENSATION ELIGIBILITY PROCESS INCENTIVE COMPENSATION PROCESSING CONFIGURE, PRICE & QUOTE EVALUATE SALES FORECASTING KPI DASHBOARDS REPORTING ANALYTICS 2015 Anaplan Slide 10

11 SALES PLANNING & MODELING Sales Planning & Modeling to Align with Corporate Objectives Corporate Objectives ACCOUNT SEGMENTATION PLANNING REVENUE PLANNING Alignment TERRITORY PLANNING SALES CAPACITY PLANNING QUOTA PLANING INCENTIVE COMPENSATION PLANNING Misalignment 2015 Anaplan Slide 11

12 Evaluating, Adapting to Change UNSTOPPABLE SALES PERFORMANCE Framework Corporate Objectives & Goals Planning & Modeling Execution Account Segmentation Revenue Planning Territory Planning Sales Capacity Planning Quota Planning Incentive Comp Planning Territory Crediting Process Quota Attainment Process Incentive Comp Eligibility Process Incentive Comp Process Reconciliation Process Payment Process Dashboard, Reporting, Analytics Get It Right. Keep It Right Anaplan. Used with permission by The Sales Management Association. All rights reserved. Slide 12

13 Customer Case Study 2015 Anaplan. Used with permission by The Sales Management Association. All rights reserved. Slide 13

14 Customer Case Study 2015 Anaplan. Used with permission by The Sales Management Association. All rights reserved. Slide 14

15 Optimal Territory Planning Maximize sales results from our market opportunities Allocate enough sales time to appropriately cover our current and potential customers Ensure we profitably cover all of our relevant accounts You had me at Optimal but what does all this really mean?! 2015 Better Sales Comp Consultants. 15

16 What is Territory Planning? How we organize and evaluate our accounts A B How we cover those accounts C How we set expectations for those accounts 2015 Better Sales Comp Consultants. 16

17 How We Organize and Evaluate Our Accounts Identify and group our accounts into logical coverage segments Geography Company size Industry verticals Common Factors to Consider Product applicability Existing customers or new customers Sales processes/cycle times Related sales force skill sets needed Ante Up Good Next Level Review current account data to rank and organize accounts Group similar accounts needing similar seller skills and coverage Try to evaluate potential growth opportunity to modify account rankings or groupings Evaluation can be subjective, e.g., A/B/C growth potential or informed by data, e.g., product gaps 2015 Better Sales Comp Consultants. Use external market data to help assess opportunity Recent BSC study 35% used 3rd party data (e.g., D&B, IDC, Gartner, etc.) when growth planning for accounts and setting quotas 17

18 How We Cover Those Accounts Define deployment approach which reps to what accounts; how many Basic gearing ratios, e.g., accounts or $1M- $2M in revenue Common Factors to Consider Types of sales reps needed Time required from lead to close (funnel analysis) Time available for quality selling (sales time vs. admin time) Ante Up Good Next Level Have defined roles Have salespeople suited to fill those roles Assign them logically (location, windshield time, skill set, etc.) Create some logical gearing ratios and consistently test and validate them 2015 Better Sales Comp Consultants. Match sales time supply and demand Analyze and ensure enough quality selling time, e.g., 75% Use time-based coverage methodologies time needed to cover each account s sales process 18

19 How We Set Expectations for Those Accounts Current sales results Degree of account penetration * * * QUOTA SETTING = GROWTH PLANNING * * * Common Factors to Consider Sales funnel analysis Account type, vertical, and market growth rates Field and/or manager feedback Pipeline/CRM review Ante Up Good Next Level Use last year plus Use quantitative or qualitative approaches to determine account or territory level growth potential Involve bottom-up inputs and planning No really use some kind of bottom-up planning! Use external data Consider regression analysis to help forecast reasonable expectations and inform the quotas For more on the recent BSC Consultants quota study, please feel free to reach out to us Better Sales Comp Consultants. 19

20 What else matters? Hmm, let me see... (You knew we d say that!) ( Better Sales Comp it s in our name!) Effective territory planning requires effective sales compensation plans They should drive and reward appropriately for the results you just so painstakingly planned for! But there are better plans and not so good plans Better Sales Comp Consultants. 20

21 Where do sales compensation plans most break good territory planning efforts? From the world of sales compensation, one area stands out as most problematic for good territory planning... Target Total Compensation Pay Cycles Pay Mix Plan Mechanics and Crediting Upside Plan Measures Absolute Commission vs. Quota Based Plans 2015 Better Sales Comp Consultants. 21

22 Absolute Commission vs. Quota Based Plans The What Absolute Commission Pays a flat percentage against volume results, e.g., 3% Cost of Sales Model Quota Based Plans Pays a portion of Target Incentive for hitting a portion of Quota, e.g., 90% of TI for 90% of goal Cost of Labor Model Application Startup phase Highly romanticized ( good old days ) Simple but not as precise Post startup phase Requires growth planning effort Note: quota setting is not always a comfortable task! Impact on Territory Planning Territories often created to ensure right volume size to deliver the needed pay Less optimal territories Territories built on optimal workload more than just volume or account based gearing ratios More optimal territories Disclaimer: No two roles, business models, or comp plans are the same, but we ll now share four issues we find when companies pay on Absolute Commission plans! 2015 Better Sales Comp Consultants. 22

23 Absolute Commission Issue 1: The Sacred Territories of the Sales Fat Cats Startup Plans in a Non Startup World 1. Territory volume grows = pay grows (often above market) 2. Rep can live happily on run rate revenue = growth stalls 3. New hires get weak territories = no pay, no retention, no bench strength 4. Fat Cat reps = untouchable 5. Overall = results stagnate Fat? I m just big boned! How Quota Based Plans Can Help Fat Cats still well-paid but rewarded for in-year growth, e.g., Commission $500K for $5M under commission Quota still $500K+ but for 20% growth ($6M total results) New reps start with smaller quotas for entry level target pay affords time to ramp up and become your sales stars of tomorrow We all love high performing reps but performance should be in the current period Better Sales Comp Consultants. 23

24 Absolute Commission Issue 2: Tip of the Iceberg Territories (aka Prune the Bush ) Having More Accounts Is Always Better Than Less, Right? 1. Rep s patch = many accounts and may ways to match last year s results and compensation 2. May only be covering a portion of accounts = most accounts get no touch 3. Reps tend to hoard accounts = no downside if fail to maximize results How Quota Based Plans Can Help First, account planning can identify poor coverage and results You can then divide the territories ( prune the bush ) and add a salesperson legacy rep and new rep each get appropriate quotas and growth targets You can create more custom growth expectations, and by specifying rep focus, drive better overall results 2015 Better Sales Comp Consultants. 24

25 Absolute Commission Issue 3: Excessive-Bonsai-Tree-Pruning Controlling Pay Through Territory Cuts 1. Bad pruning = too far/wrong reasons 2. Growing results under commission plan = some say too much pay 3. Companies slash territories = control pay or normalize pay across sales force 4. Reps figure it out = only grow territories to a point just below getting cut! Please put down the shears! How Quota Based Plans Can Help Pay doesn t go up or down in lock step just because absolute volume goes up or down Providing target incentive for hitting target performance (quota) can avoid excessive pruning reactions Territory assignments and changes are made to create optimal workload and drive growth each and every year 2015 Better Sales Comp Consultants. 25

26 Absolute Commission Issue 4: There is No Team in Team Selling How Not to Drive Good Team Selling 1. Some sales models are complex = can take a village (cross-geo sales, product specialists, sales engineers, etc.) 2. Commission plans often require split crediting = no one paid on same dollar 3. Split credit = reduced commission = less willing to bring in the right resources at the right time GO TEAM! (Unless I have to give you some of my commission $$$) How Quota Based Plans Can Help Can assign quotas to respective sale team members works best with proactive account coverage Effective territory planning means you ll have a better handle on which accounts will need which salespeople Territory planning also allows more granular deployment so overlays aren t paid for accounts they likely won t touch 2015 Better Sales Comp Consultants. 26

27 How Do We Move From Commission to Quota Plans? 1. Identify Target Incentive for each person Can be informed by past payouts as well as market data 2. Ensure clarity of account assignments (i.e., territory planning!) 3. Develop goal-setting methodology and set quotas for the assigned accounts and/or territory patch 4. Decide on quota plan mechanics details Threshold usage? Goal period? Acceleration model? Payout timing? 5. Create appropriate rollout materials to explain the change the what, how, and why 6. Communicate, communicate, communicate WIIFM? 2015 Better Sales Comp Consultants. 27

28 Territory Planning and Sales Compensation Optimal territory planning requires... Great diligence A well-reasoned process and methodology Ideally, a good tool to help enable that process But territory planning without the right sales compensation designs cannot truly be optimal 2015 Better Sales Comp Consultants. 28

29 Questions and Discussion #SalesComp Enter your questions in the Questions box on the right hand side of the webinar application window. Did we run out of time before we got to your question? Presenters can follow-up with you via . Feel free to submit more questions if you d like an offline response The Sales Management Association. All rights reserved. Slide 29

30 Questions and Discussion #SalesComp So we have what you call the Fat Cat problem. We are worried about turnover risks. What can we do? 2015 The Sales Management Association. All rights reserved. Slide 30

31 Questions and Discussion #SalesComp You mentioned Sales Capacity Planning as part of the Sales Performance framework. This seems like an HR function (I.e. Recruitment and Hiring). Why is this part of your framework? 2015 The Sales Management Association. All rights reserved. Slide 31

32 Questions and Discussion #SalesComp Where do ICR plans fit in the structural debate? 2015 The Sales Management Association. All rights reserved. Slide 32

33 Thank You. Copyright 2015 The Sales Management Association