February 19, 2014
It’s a difficult one, isn’t it: even just thinking about changing the way you measure your sales team. Especially from your position in the organisation. A rather insurmountable mountain. A mountain I once tried to climb. Well, to be a little more honest, I spent some time campaigning to win over senior management as to the merits of the change. This was ten years ago, and it was rather like a broken pencil (pointless that is) and not much fun to boot.
So, why should you embark on this perilous trail?
1. Well for starters (and forgive the rather obvious statement) now is not then! Ten years further on and life at the top of the organisation has changed. According to a February 2013 study, over 50% of Senior level Sales executives now report that some percentage of their compensation is tied to margin performance. This makes a difference: most organisations today have already squeezed all possible cost reductions out, so the only option for margin improvement is through Price. Improving margins has Senior Management attention.
2. There is You – and Your team. The increasing existence of Pricing teams is a direct result of the shift in management attention to focus on price and margin.
3. The advent of improved Pricing analytics and Pricing solutions means that it is easier to measure teams on a balanced scorecard of Pricing Metrics & Measures.
If you are bought into the fact that now is a good time for the change, the question becomes how to go about this and of course, how do you want to measure the Sales organisation?
How to propagate the change:
• Accept the fact that you will need to be a silent partner in this change
– You don’t need credit for this idea.
– You will benefit indirectly and sufficiently from the change.
• Structure and document the process and benefits of this change
– Write a Whitepaper or put a Presentation together outlining the way forward.
– Don’t send it to anyone.
• Plant the seeds of inspiration
– Find a person in the Sales organisation who has the ear of the SVP Sales.
– Give them the idea. Give them the document. Let them take it to the top.
– They will be grateful. You have just won yourself an ally in the Sales team.
• Provide advice when requested and positively support the change
– Be ready to provide the details of how you will set up and monitor this new performance measure.
The new measure for Sales performance.
I don’t think that there are so many options to consider. Obviously, Revenue alone is not enough. This is why we are discussing the change. Moving to a pure margin target also seems to make little sense. This is often how the marketing organisation will be measured. So, it needs to be some combination of both. I am a big fan of using Margin as an ‘Accelerator’ (and ‘Decelerator’ if you think the organisation can take this much change in one go. Revenue (or Volume) remains that base goal for Sales (this makes the change process itself easier to manage). On top of the base target of revenue, you apply the Margin ‘Accelerator’ (or ‘Decelerator’):
• Pick and agree on a Margin Target
• Set threshold levels (corridors) above and below the Margin Target
• Define multipliers for performance achievement in each of these corridors, e.g.:
0-5% above Target = Bonus *1,06
5-10% above Target = Bonus*1,15
-5%-0% below Target = Bonus*0,95
• If you have a Pricing Solution, make the calculation and impact directly visible during Deal Negotiation
– Sounds farfetched? It’s being done. Believe me!
If you are in any doubt, let me tell you about one rather progressive company I know. They are in the process of making this change, moving from revenue only to a balanced revenue and margin calculation to measure Sales performance. To make it stick, they have opted for a dramatic change. They intend to make the impact on the Account Manager’s variable compensation directly visible in their Pricing Solution during the quotation process. Let’s face it, there is no more direct and personal way to influence an Account Manager than to show them during their deal preparation the impact of the calculation between an increase in volume, an increase in price or (for even better compensation results) an increase in both. Just to be clear, the calculation is set to work in the other direction if a decrease in price (margin) is proposed.