Sales Directors need Objectives and Key Results (OKRs) in their sales incentive plan so they can coach the behavior and reward the results that make their business successful.
What are OKRs?
Developed in the 1970s by the President of IT business Intel, Andrew Grove. OKRs have been described as Google’s ‘secret sauce’. Do you want your business to be as successful as Google? Use OKRs. If only it were that simple!
Step 1: Mission/Vision
The mission/vision is the big picture company-wide view of where the business is going, what products/services it delivers and to whom. The company’s vision should be clearly articulated and easily understood by everyone who works for and with the business, especially staff but including suppliers and customers.
Step 2: Annual Objectives
To make your OKRs effective, it is a good idea to choose five or fewer annual objectives.
All objectives should be SMARTA:
- Specific – clearly defined and focused
- Measurable – outcomes are measurable (quantity, percentage, volume)
- Achievable – realistic but also show some ambition.
- Relevant – consider product lines, market segments, customer groups, new business vs retained business
- Timed – has an end date or a major milestone
- Agreed – is agreed with team members, managers, and direct report. The ideal scenario is 100 percent support but that is probably unrealistic.
A financial annual objective for a sales team might be to increase the volume of qualified leads for a certain product Australia-wide by 10 percent. So, if the business generated 500 qualified leads in the previous year, the new objective would be 550 qualified leads.
A non-financial objective might be to improve the company’s net promoter score. The business might start with a net promoter score of 6.5 and set an annual target of 8.5.
Step 3: Quarterly Objectives
Take each of the annual objectives and break them down further into quarterly objectives. If the business is seasonal (eg a ski resort) then quarters, when the business is more active, can be loaded. If the business is not subject to seasonal fluctuations then divide annual objectives by four.
Using the example above, assuming there is no seasonality the financial objective would be to qualify an extra 13 leads each month. The non-financial objective would be to improve the net promoter score by 0.5 each quarter.
Step 4: Key Results
Key results are how you measure whether you are achieving your objectives. They can include a mixture of leading and lagging indicators. Leading indicators refer to actions that influence an outcome whereas lagging indicators are measurements of that outcome.
Again, using the same example for lead generation, key result areas could be:
- Number of contacts made to leads
- Number of qualified leads
- The conversion rate of cold lead to qualified lead
These key results would be measured weekly or monthly. For example, it would be impossible to qualify 13 leads a month if only 10 leads were contacted during the month. An understanding of the conversion rate from cold lead to qualified lead will help set the next step, which is the to-do list. So, if you know your conversion rate is 30 percent from a cold lead to qualified lead, to get 13 qualified leads you would need to contact at least 40 cold leads.
Similarly, for the non-financial objective, the sales and customer service teams need to proactively work each week to make a favorable impression with customers. The customer-focused activities might include:
- The time that is taken to respond to customer or new business queries
- Number of client issues resolved versus outstanding issues
Step 5: To Do Items
To contact 40 cold leads in a regular working month of around 20 days you would need to contact two per day. Measuring the conversion rate will help you to evaluate the effectiveness of your sales tools such as scripts and offers.
To resolve customer queries promptly requires efficient processes and coaching. To do items might include a review of customer service procedures, standard response times and training of customer service and sales representatives.
Why Do Sales Directors Need OKRs in the Sales Incentive Plan?
It all sounds simple, doesn’t it? And in theory, it is. But how many businesses get it right? Companies like Google invest heavily in this type of process to keep their employees focused on activity that generates results. And if an activity is not generating results, they fix it or change tack.
1. Create a shared understanding
Selling is a team game and everyone needs to understand the big picture (vision/mission and annual objectives) down to how they make a contribution individually (daily and weekly tasks that need to be completed to achieve the big picture). Therefore, measuring performance requires a mix of metrics, from micro individual results, scaled up to macro company-wide measurements.
2. Give prominence to employee behavior
OKRs provide a quantifiable method for Sales Directors to incorporate behavior of sales and customer service representatives into the sales incentive plan. Behavioral metrics are often considered the ‘soft’ measurements and behavior is not rewarded and recognized with the same weight as financial results. However, it only takes one rogue employee and one disgruntled customer to go on a social media blitz to create a public relations nightmare that will haunt the business for years to come. Businesses cannot afford to risk their hard-earned reputation with poor staff behavior and OKRs are a great tool to communicate and reward customer-focused employee behavior.
3. Recognize and Reward the right behavior and results consistently
Once there is shared understanding, it is easier for a Sales Director to coach the right behavior and reward teams and individuals on the key result areas they achieve. It can also help Sales Directors determine which sales behaviors and results will earn sales commission. If it is not an OKR, why is it commissionable? Or if there is a sales metric that earns commission, why is it not part of a key result area? Another key component is consistency in measuring and rewarding the right behavior. Sales incentive plans chop and change quarterly with a mixture of metrics. OKRs provide very clear focus on what behaviors and results need to be in the sales incentive plan.
4. Understand where the performance issues lie
If sales are down on last year but you know the call center has qualified 10 percent more leads you have a good indication the problem isn’t lead qualification. You can investigate further down the sales funnel to assess and resolve where the sales performance issues lie.
5. Make sense of complexity
Many businesses sell a multitude of products, services and complex solutions across a variety of markets. It can be difficult to know where to focus attention. OKRs break down the complexity so Sales Directors and their teams can see what they need to focus on to generate results.
6. Set up your systems to measure & report on OKRs
Sales Performance Management software like Performio are a great tool for Sales Directors to embed an OKR plan within their organization. Features such as the dashboards and reports can be set up to reflect the OKR plan and provide information at a click for Sales Directors.
Learn how clear and accurate sales reports for your Sales Directors by requesting a demo.