2023 is likely to be a year of challenges for many companies with economic headwinds forcing leaders to regularly adjust their expectations. Most would agree, it’s probably not the best time to be a salesperson, but this is also precisely the time that companies need their best sellers to stick around.
Generally speaking, adjusting plans mid-year isn’t ideal and can erode trust if not done in the right way. However, if the plans aren’t driving and supporting healthy behaviors, then there is a strong case for making revisions for H2 or sooner.
Below are 3 lead indicators that your sales plans aren’t ready to drive performance that your business needs.
1) Average quota attainment is consistently less than 100%
An easy statistic to pull is the average quota attainment over the previous few performance periods. If that number is consistently below 100% then you likely have a problem. It’s one thing for an individual or a small group to miss quota however for an entire sales team to be, on average, failing, is not a tenable situation. Sales folks, despite what many would say, are not purely “coin-operated”. They still need to be engaged and motivated to perform at their best. If your top sellers don’t believe they can realistically hit their quota, there is a good chance they will start taking their foot off the gas.
Quota-setting isn’t easy to get right and it is far easier to set achievable quotas in years of growth than in years of stagnation or decline. Reviewing the quota-setting methodology and restating targets to achievable levels may help to lift performance across the whole team.
2) You can’t summarize the plan on the back of a beer mat
One of the more common ailments of a sales plan is complexity. The “band-aid” effect of sticking on multipliers, linkages, caps, spiffs, and qualitative metrics, throwing in a qualitative metric here and there, are all intended to address perceived inadequacies around the sales plan. However this is more likely to turn the plan into a black box that no one, except for a select few, truly understands. At this point, instead of driving all the behaviors that the mechanics theoretically should, the plan is really driving none of the behaviors. In periods of growth where everyone is hitting quota and being paid handsomely, this may not matter but as commissions drop, these complexities give rise to familiar refrains like “leadership doesn’t want to pay us”, or “they pay us what they feel like”.
There are simple tests for complexity – can you draw out the plan metrics and mechanics on the back of a beer mat? Can you describe it to someone in under a minute? If you can’t do either of these, in such a way that they can genuinely calculate the commissions on their sales, then it is time to go back to the drawing board and build the plan from scratch.
A sales plan should have a maximum of three measures, ideally one or two, and there should be as few steps in the calculation as possible – ideally two steps such as commission and a multiplier, to preserve the line of sight between sales and earnings.
Incidentally, this is one of the reasons that I often encourage removing thresholds from plans. Adding in thresholds tends to mean year-to-date calculations which make things terribly complicated.
3) Top performers are leaving
If top sellers are leaving, that is obviously a major issue. Oftentimes sales teams follow the Pareto Principle whereby 20% of the team generate 80% of the revenue. Arguably it is these periods of economic stagnation where it is more important than ever to retain that top 20%, both to generate as much revenue as possible from a difficult environment, and to maintain the performance and institutional knowledge for when markets (hopefully soon) improve.
In order to keep top performers engaged It may be necessary to downsize the sales team, realign territories, and redistribute quotas thereby encouraging top performers to stay, increasing sales opportunities, and reducing the Compensation Cost of Sale.
Love or hate the sales team, they remain the custodians of top line growth and getting the most out of this group is key. As HR professionals we can play a key role in managing the often opposing views of finance and sales in a way that allows everybody to win.
Two books I recommend to build your understanding of sales incentive plan design:
Disclosure: Some of the links above are affiliate links. This means that, at zero cost to you, I will earn an affiliate commission if you click through the link and finalize a purchase.