This video has two sales commission experts teaming up to look at the factors involved in missing sales quotas and goals.
You Missed Your Q1 Sales Goals - Now What?
Today, we are fortunate to have two experts in the sales compensation field: Teanna Spence, founder and lead sales compensation consultant for Sales Compensation Strategies, along with our very own David Marshall, managing director and co-founder of Performio. Teanna's practice is based out of New Hampshire in the northeastern United States. She has over 20 years of experience in incentive compensation design, management, and automation. She specializes in helping small and medium-sized companies develop strategic sales compensation plans to maximize revenues.
Teanna has been on both sides of the fence in terms of calculating commissions and making sure the reps are paid accurately and on time. She has implemented some major platforms in sales and compensation. Currently, she spends most of her time on sales compensation design.
As one of the visionaries behind Performio, David helps sales organizations improve sales performance and growth by showing them how to deploy the best incentive and comp plan strategies to drive results.
Identifying Why You Missed Q1 Sales Goals
These are the three key issues that you need to look at to understand why your reps didn’t make their sales goals:
- Aggressive without supporting plan
- Hard to measure
- Equitable goals
- Achievable goals
- Trackable goals
Teanna hits the nail right on the head: there are too many CFOs who have a goal, but that goal is really their wish. It is not based in reality. These CFOs create quotas around “what the company needs” but they don’t offer any supporting documentation, marketing plan, or product plan to back up the quotas they have created. They don’t have the right people in place to meet the quotas, but they want that number.
An example of this is the CFO who sets quotas at $100 million when the company only made $20 million the previous year.
The second part of this issue is the over-allocation of quota. A company has ten sales reps, and the real goal for the company should be $10 million. Then the company gives the sale organization a target of $11 million. Meanwhile, the sales VPs are looking at the same number, and they want to make that number, so they say that the sales reps must make $1.2 million apiece or $12 million in total.
So what happens in that scenario is that when a rep is on target- the real target- they are at 83% of their assigned quota. There is a tremendous impact to the organization when you have a team of people who are underperformers at 83% of their goal versus having the whole team at 100% of what the real goal should be. The motivational cost to the sales team is huge when you over-allocate the quota.
The third and final point is when you make it hard to measure quota. Companies can spend millions of dollars on sales comp plans but entirely miss the data connection, so they created these wonderful plans that have no way of accumulating the needed data.
You’ve got to make sure that you can not only get the data but that you can identify what data is related to what sales rep. How do you define the territories? Is it by geography? Is it by customers? Is it by round robin? What is your methodology? Then, make sure the actual sales data follows the logic of your quota setting.
This often results in some companies thinking that you need to budget in some fat to make quota.
As Teanna points out, CEOs want to make sure they make their numbers. Therefore, they want to figure out how to hedge their bets so they can make their numbers. However, a good comp designer’s responsibility is to make sure that they run realistic scenarios. This includes some reps who are over quota, as well as reps who are under quota in the scenarios. Additionally, if you’re going to budget in items like accelerators, you need to make sure you can realistically afford it.
- Unmotivating compensation plan
- Measuring one thing and paying on another
- Too many reps fighting over credit
- Holding sales
- Plan structure to attract and retain top talent
- Reward based on what the rep controls
- Clearly defined job roles aligned to corporate strategies
In 2018, it's still shocking the number of people who get paid a flat commission rate, no matter how much they sell. This creates a very unmotivating sales comp plan. There is no sense of urgency to bring a deal in if the sale is worth the same in January as it is in July as it is in December or the beginning of next year. It doesn’t matter.
We also often see high thresholds. Companies will have a high threshold where the rep will receive no commission until they cross over that threshold. This creates the issue where the sales rep feels like they are working and working but not getting paid. It's very umotivating.
Measuring on one thing and paying on another also has negative dynamics. Management tells reps to do one thing but then pay them commissions on something else. A classic example would be if a quarter is set on bookings, management says to be at the Q1 booking number, but sales people are actually paid on cash receipts. Because of this, the rep allocates some time, even if it is a small amount, to track net cash receipt. They may start calling the customer to see if they have paid the bill. Instead of booking sales, they are spending time tracking that cash.
This is a waste of valuable sales minutes. When you design a plan correctly, you want to direct the sales force to do the work that’s in alignment with your company’s strategic goals.
Sometimes you have reps fighting over credit. Teanna mentioned how when she managed a sales comp organization where two of her top sales reps fought over the same sale. One was a territory rep and another was a national account rep. Again, it was a waste of time. You want to make sure that comp plans are designing and articulating rules over who gets credit for the sale and how you make decisions in that situation.
When you have reps wasting their time fighting over things, it’s because the plan is not clear.
Finally, you have the issue of holding a sale, where you can have two reps close to 100% attainment, and yet one will make $90,000 or $80,000 more than the other.
So what happened in this instance? Why did one rep make so much more money than the other rep when bringing in the same revenue? The problem was in the sales commission plan. This plan had a high threshold, it had tremendous accelerators, and it reset every single month. The guy that was paid the most money would sell nothing the first month but then in the second month sell everything, which put him in accelerator mode. He would repeat this pattern in month three and four, five and six, and so on. The one who made so much less brought the sales in when they happened and often didn’t make the threshold.
You really want to look at your data in totality to make sure that the reps aren’t gaming the system to make more money at the expense of the company.
Accelerators that are set on a monthly basis open the door to reps gaming the compensation plan.
Commission Plan Rollout Problems
- The late rollout of the commission plan
- Reps not sure where to spend their time
- Detailed plan documentation in sales reps' hands the start of the year
- Documentation explaining all the rules, who gets credit, when credit is applied, how much is paid and when incentives are paid
It's no secret: commission plan rollout problems happen all the time. Sometimes they can be several months late and when they are late, the reps end up guessing where they should spend their time. Some companies have no documentation at all or any sale commission statements, so the reps also have no idea how they’re getting paid.
You want to have the plan documentation in the reps’ hands as soon as you can at the beginning of the year. In some states, there are rules around what happens if you don’t submit your plan promptly. You want to make sure that the documentation clearly explains who gets credit for what and when this credit applied and how the commission was paid. If not, the company can be liable for extensive damages if sued by a disgruntled employee.
Rolling out a sales compensation plan late can have a serious impact on the company’s ability to hit their targets.
Know Who Your Best — And Worst — Salespeople Are
Your best sales reps can generate five times more revenue than other sales reps. So how do you structure your plans so that you can get A-players and how do you structure your plans so that you have more than 70% of them reaching or exceeding quota?
Make sure your quotas are set accurately. Pay your reps at or above market. That’s what the high-performance companies do. You want to really make sure that you can retain your top talent, and in this labor market, that’s critical. Many of the companies Teanna is currently working with are very afraid of losing top talent, and rightly so. Talent is going to go someplace else if they believe they can make more money someplace else.
Remember, if you lose your top talent, you need to factor in the need to train somebody else, and that it will take time to get them on board and up to speed. Additionally, it will take even longer for them to reach the A level of your recently departed employee.
You also want to structure your sales plans to encourage low performers to leave. You don’t want them there. As much as you might think, they are bringing in some revenue and any revenue is good revenue, they are actually bringing down the organization.
Creating A Sales Commission Plan That Works — And Identifying Ones That Don't
Sales comp is much more than a commissions calculation; it is really a performance management tool. It’s important to understand where you are today and to be able to forecast what you expect to happen for the rest of the year. In some companies, it’s the only place where all the sales data come together under one umbrella.
It’s important to not only know where the revenues and expenses are, which is where the comp analyst spends a lot of time but to also know how your sales reps are performing against the goal.
An age-old question is whether it's more important to focus on annual performance or on quarterly performance when designing a sales comp plan. As Teanna points out, it really depends on the company. If a company hits every single quarter and the quarters have been set accurately to reflect the seasonality of the business — a business may do better in spring and summer than during winter for instance — then measuring against a quarterly goal in keeping everybody on target for the quarter is a great way to go.
It is often in how you present the data. Teanna said she personally prefers to see data presented in a way that shows a sales rep how they are doing towards that 100% goal for the year, as opposed to how they are doing for 25% of the year.
As for when is it the right moment is to kick in accelerators, Teanna said that you should structure the plan so that accelerators kick in once annual goals have been achieved, not when you achieve a quarterly goal. You may have quarterly bonuses and you may have a Q1 kicker bonus. For example, imagine your business is selling boats in New England where it gets very cold in the spring. Nobody thinks about buying a boat when it’s cold out, so you might look at putting a Q1 kicker bonus if your reps get 10% of the annual goal because it’s hard to make that.
It's also important to some additional metrics, which using a program like Performio allows you to do. It provides a better understanding of how people are tracking. It provides all important real data to show that the fluctuation in the number of people hitting targets over the course of the year. When you do your comp design plan properly, then you’ve modeled this scenario, so you can make sure you can afford to pay accelerators when you think it’s appropriate, say, at 90% of your annual goal.
Course Correction — What to Do If Your Sale Commission Plan Is Blowing It
Finally, there is the difficult question of what to do when you are halfway into your business year and you’ve worked out that your targets are, in fact, are too high or, vice versa, you’ve worked at your targets too low? Can you take corrective action at that point?
Teanna said if you realize there was a flaw in your quota setting process and you’ve set overly high quotas, reduce them but make sure the commission plans that you have in place with the lower quotas are still affordable. There is some work involved in the process, for instance, you need to forecast the realistic targets against the plans that you’ve created to make sure that you’re going to have more people than accelerators, for instance. Also, you want to make sure you can afford your commission expenses.
Still, the best course of action is to reduce quotas. Your sales reps will really appreciate it. They know they could not make the previous numbers because they were unrealistic. It also provides a great boost to the sales reps' morale and encourages them to perform better than they might have under the old numbers.
On the other hand, if your quotas are set too low, leave them. The worst thing you can do is raise somebody’s quota during the year and not give them any other benefits. It will undermine motivation and it will cause people to leave. You will have a turnover that you had not anticipated. Now, if there’s an acquisition and you have more things to sell, that’s a different answer, but if you made a mistake and set your quotas too low, leave them.
Raising the quotas in this situation becomes a long-term issue. That within the sales organization taking this kind of action can become almost legendary. It has a negative impact over time that doesn’t go away.
In conclusion, Teanna added that salespeople hate it when you raise their quotas, even if it’s in the new fiscal year. Therefore, it’s important to do it mindfully.
Let Performio Help You Create a Plan to Meet Your Sales Goals
When you develop a consistent sales compensation plan, your business and your people will prosper. That’s why letting Performio help you with their sales performance software allows you to avoid falling victim to some of the issues mentioned above.
If you are serious about creating a high-performance culture in your company, contact our sales team today and arrange a demo of our software.