Get the most from your sales force Designing the right compensation plan

Transcription

1 Get the most from your sales force Designing the right compensation plan APRIL 2013 MARC WALLACE

2 Life Sciences This pharmaceutical firm paid based on growth over previous performance Sales Commission Sustained performance is not reflected by the incentive. Two problems: 1. Sales reps were penalized for good performance, causing them to check out after a good year. 2. By not using a quota, the company had effectively abdicated translating strategy into the incentive plan. 2

3 Commission on subscription This organization had outsourced business services One Time Weekly 2 Week Monthly Commission % 5% 10% 7% 5% Current distribution of sales 65% 20% 10% 5% Avg. sale price per unit $400 $200 $220 $240 Reps were telling customers who wanted a contract to re-up after each service to ensure they would get multiple commissions on the same business. 3

4 Field sales reps for equipment Company strategy was growth, but field reps for this company were paid a commission. This was manifest when there was a vacancy: Territory Sales Q1 Q2 Q3 Q4 Total Rep 1 $2,500,000 $2,300,000 $2,600,000 $2,200,000 $9,600,000 Rep 2 $2,400,000 $2,700,000 $2,500,000 $1,900,000 $9,500,000 Rep 3 $1,400,000 $1,680,000 $1,540,000 $1,260,000 $5,880,000 Rep 4 $725,000 $942,500 $761,250 $761,250 $3,190,000 OPEN TERRITORY $700,000 $805,000 $770,000 $665,000 $2,940,000 Rep 6 $650,000 $780,000 $715,000 $585,000 $2,730,000 Rep 7 $640,000 $768,000 $704,000 $576,000 $2,688,000 Rep 8 $550,000 $715,000 $577,500 $577,500 $2,420,000 Rep 9 $430,000 $516,000 $473,000 $387,000 $1,806,000 Rep 10 $325,000 $308,750 $341,250 $357,500 $1,332,500 The territory without a rep is the 5 th best producing territory in the company. This indicates that incentive pay to reps may not support top performance. 4

5 Manufacturing equipment Manufacturer works through distributors Commission one number Key behavior work closely to improve distributor business, facilitate supply Need to create focus on customer First attempt visits to customer sites Second attempt customer satisfaction Third attempt performance management 5

6 Consumer products FMCG firm Bonus target based on growth Multiplier based on mix Focus on client supply chain, particularly for key accounts First attempt build the business case Second attempt preferred vendor status Third attempt account growth 6

7 Sportswear retail Sportswear retail Store retail based on exceeding monthly volume Team based Wanted to create a clienteling experience First attempt repeat business Second attempt sales made by reaching out Third attempt forget it 7

8 The Tools To build the best plans, consider: Role value matrix: the nature of the role The measures: what reflects performance The market: how do you competitively pay in the market 8

9 The sales value matrix Farmer Familiar friend Trusted advisor Transactional Consultative Field rep Deal maker Hunter 9

10 Sales roles Example: how sales accountabilities vary Unilever Territory Sales Rep Familiar friend Keep customers satisfied and supplied Sell up: push promotions Observe and report on condition of product (e.g., stock on the shelves) Farmer Understand client s business Leverage relationships Scan for new resources, techniques, breakthroughs Provide deep insight Mobilize resources to make sale and get work done Influence collaboratively Trusted advisor Applied Materials Senior Product Specialist Transactional Consultative Daiichi Mutual Life Sales Rep Field Rep Identify and qualify prospects Hook the customer Overcome buyer s obstacles Close quickly Follow the script or method Organize tasks efficiently Hunter Scan for opportunities Leverage networks Orchestrate internal resources Adaptable and persistent Perform bold and innovative actions to influence Deal Maker Airbus Global Account Director 10

11 Sales roles: defining the metrics of success Familiar friend Sales volume Product placement Customer satisfaction Farmer Client satisfaction (repeat business) Sales volume (driven by client satisfaction) Profitability Trusted advisor Transactional Consultative Field rep Number of new sales Sales volume Staying within the rules Efficiency (e.g., calls per hour) Hunter Volume of new business Profitability Long Term Locked-in Relationship Deal maker 11

12 Sales roles and competencies: What type of influence skills are required? Familiar friend Good communication skills, friendly and outgoing Farmer Complex influence strategies, across client and over time, involving others, collaborative, winning trust Trusted advisor Transactional Consultative Field rep Articulate, follows script, adapts if needed, strong closing techniques Hunter Sensitive to customer buying signals (e.g. prestige) Deal maker 12

13 Sales roles and compensation: IC plan Farmer E.g. Volume, Quota Focus Familiar friend Single measure Simple, goalbased plan Multiple measures Complex goalbased plan Trusted advisor E.g. Profit, Strategic Initiatives Transactional Consultative E.g. Strong Volume/Unit Focus Single measure Multiple measures E.g. Contract Size, Profit, Strategic Initiatives Cold-call closer Commission plan Commissions + objectives Deal maker Hunter 13

14 Choosing measures When determining appropriate measures, most organizations consider both classifications of measures together. End measure Intermediate measure Primary Examples: Bookings Realized margin Examples: Strategic sales Incentive factors Secondary Examples: Corporate net income Region EBIT AR/DSO Examples: Numbers of sales calls Proposals generated Merchandising Increasing leverage Increasing role differentiation 14

15 Measures reflecting the customer Nature of the measure will impact how it is incorporated: End result Activity Growth Key account growth Repeat business Key account plan Market share Customer satisfaction Appropriate for incentive plan Appropriate for perf. mgt. 15

16 New focus on the customer Sales organizations are focusing on the quality of customer experience Lower CoGS from repeat sales Better retention of customers supports growth Supports implementation of strategy More organizations appear to be incorporating customer measures in incentive design Measure 2011 Weight 2010 Weight Customer focus/satisfaction 13% 4% Territory management 30% 0% Account management 25% 7% 16

17 Apple pie It is important to consider why inclusion in the incentive plan on the table: What is the rationale? Strategic Reinforce a message Growth Change management Does it matter, or does production automatically include customer satisfaction? Growth Retention Is it an end result measure? Or measure of an activity? 17

18 Measurement challenges In our experience, we see several challenges implementing customer measures: Obtaining data: Opinion Secondary sources Actual link to performance Equity Risk of increased cost of sales Credibility 18

19 Incorporating customer measures Pay = out Additive Modifier Trigger Primary measures have greater weighting Primary and secondary measures are completely independent 2 Primary measure achievement is modified by achievement on a secondary measure The primary measure drives performance. The secondary measure may adjust the performance level. By itself, the secondary measure has no impact performance on the primary measure occur first 2 A preliminary threshold of achievement on a secondary measure must occur Once the threshold has been achieved, it falls away and the plan is driven by the primary measure 19

20 Be careful with market data It is important to look at the distribution of data $120,000 $100,000 $80,000 $60,000 $40,000 $20,000 $0 ATC P10 ATC P25 ATC P50 ATC P75 ATC P90 company data $20,182 $32,557 $50,036 $80,645 $113,536 Field Sales Rep family $50,800 $62,700 $76,900 $90,800 $103,900 20

21 The incentive plan is not the only tool Reflect all the vehicles of sales rep interaction: Incentive plan Merit cycle Performance management Contest/club eligibility Career development Culture 21

22 Design tips Our research and experience shows that: Things to avoid Assuming sales people are coin-operated Paying account managers like sales people Adding secondary measures Designing for the exceptions Caveat: Size channels and territories, not roles Things to focus on Being the dumbest person in the room Using end result measures even if sales people do not have complete control over them Ensuring incentive is a strategy vehicle Not a pay delivery vehicle Modeling the impact 22