September 15, 2016
The technology and manufacturing industries contend with obsolescence on a regular basis to improve efficiency. Why can’t business practices be treated similarly? Wells Fargo took a step in the right direction by removing sales quotas—albeit after years of steps in the exact opposite direction.
We have talked at length about value—here and here—and how companies should prioritize deal value over volume. But, the fact remains that volume is still seen as the true measure of success for a company’s Sales team.
A while back I heard a story about two automobile manufacturers. They both found a problem along the assembly line. Company A stopped all production at once and solved the problem, thus preventing it from reoccurring. Company B decided they would fix the problem each and every time it came up. Solving the problem at its inception ended up saving Company A millions of dollars in parts and labor, while Company B had recurring expenditures, draining money from the bottom line.
When a Sales team is incentivized to close an “ideal” number of deals, they gloss over problems along the way with only the end goal in mind. Rather than taking the time to right the ship and prevent future issues, they develop bad habits—over-discounting, excessive rebates, unprepared negotiations, etc. Wells Fargo clearly set the bar (way) too high, forcing their Sales reps to find new paths to that mythical number in the sky, and it has cost them.
It is time to do away with sales quotas.
Here are three ways in which your company can change the sales process to empower your reps, while providing incentives that benefit the team and the company overall.
Wells Fargo’s Sales reps sought out “alternative” methods of reaching their quotas for years before an investigation even began. A lack of oversight leads to profit and margin leakage occurring completely unabated.
Implement a set of guardrails for a quick way to stop margin leakage at the deal level. Your pricing system should have a built-in function that instantaneously provides the rep with an optimized target price range. From there, the rep enters negotiations and comes back with a new price. Here, your rep will be able to see 1) if the price is within the target and 2) who needs to approve the price. The approver is then notified of the proposed price. Consequently, all relevant stakeholders are aware of how the deal is progressing.
By implementing approval guardrails, each deal receives the attention it deserves to ensure maximum profitability. Since the system is automated and integrated, this process need only take as long as it takes for your reps and the approvers to access the system, keeping the deal cycle moving smoothly.
Make Negotiations Easier
I feel safe in assuming your reps have too many accounts at once. There is simply no time for them to adequately prep for each and every negotiation they have. At this stage, many companies forget that Sales represents the front lines. They’re out in the field, on the go, trying to hit their numbers.
By removing the fear of numbers-based judgments, they can shift their focus to the deal itself. Help them do this. Your pricing and finance teams are working in the background to determine the best prices and deliver them to Sales. When doing so, provide them with a transparent overview of how that price was determined—which metrics were used, how high/low they can go, etc.
With data-based insights in their back pocket, reps can negotiate with confidence that a closed deal will be profitable.
Actually Change the Incentive
The above points are operational, mindset changes. To convince the Sales team that value is, well, valued over volume, change the incentive. I have seen companies use price optimization solutions to set a target price window and subsequently incentivize their reps to win deals within that window.
This serves as a mutually beneficial incentive. The reps now have a concrete area within which they can negotiate and focus on improving their win-rate. For the company, it means deals will be more profitable. And for the C-suite this acts as an integrated measurement tool to determine which reps are succeeding in driving value to the bottom line, and which reps need to improve their negotiation skills and tactics.
Obsolescence frequently has negative connotations, but there is no denying that change can lead to innovation, which can lead to better success and efficiency. Sales quotas are woefully obsolete. If you have them in place, take a second look. Despite the inflated volume numbers, costs are likely high and deal profitability is probably sinking.
Remember, fixing a little problem at the beginning can yield success down the line.