Sales Management Association Webcast Sales Performance ... · 23 LT Quota Gap Allocation Gap...

Presented by

© Copyright 2017 The Sales Management Association. All rights reserved.

SalesManagementAssociationWebcast

19January2017

Sales Performance Management Series Webcast 5: Aligning HR and Sales with Effective Sales Targets

ScottSandsPartner,SalesForceEffectivenessAonHewittscott.sands@aonhewitt.com

RowanTonkinHeadofSalesandMarketingSolutionsAnaplanrowan.tonkin@anaplan.com

© Copyright 2017 The Sales Management Association. All rights reserved.

About The Sales Management Association

Aglobal,cross-industryprofessionalassociationforsalesoperationsandsalesmanagement.

Focusedinprovidingresearch,casestudies,training,peernetworking,andprofessionaldevelopmenttoourmembership.

Fosteringacommunityofthought-leaders,serviceproviders,academics,andpractitioners.

www.salesmanagement.org

www.salesmanagementconference.com

2

16 – 18 OCTOBER 2017 ATLANTA

© Copyright 2017 The Sales Management Association. All rights reserved.

Today’s Speakers

3

ScottSands

Partner

AonHewitt

scott.sands@aonhewitt.com

RowanTonkin

HeadofSales&MarketingSolutions

Anaplan

rowan.tonkin@anaplan.com

Presented by

© Copyright 2017 The Sales Management Association. All rights reserved.

SalesManagementAssociationWebcast

19January2017

Sales Performance Management Series Webcast 5: Aligning HR and Sales with Effective Sales Targets

ScottSandsPartner,SalesForceEffectivenessAonHewittscott.sands@aonhewitt.com

RowanTonkinHeadofSalesandMarketingSolutionsAnaplanrowan.tonkin@anaplan.com

Topics for Today

o What do we mean by sales targets?

o Why are sales targets valuable?

o What are common issues with sales targets?

o How do many companies approach sales targets?

o Who should own sales goal-setting?

o What does a best practice process look like?

o What information and inputs are required?

o How can we improve incrementally in the next few weeks and strategically in the next 12 months?

o Q&A

o Double in size over the next five years

o Deliver $1 billion of revenue next year

o Secure orders for 10,000 units of the new product

o Achieve gross margins of 55%

o Contribute gross profit of $550 million

o Increase net promoter score to 32%

o Reduce cost of sales to 5.0%

o Reduce days of sales outstanding to 38

o Improve solution selling capability

o And many others…

There are several types of sales targets (or goals or quotas) that can result from long- or short-term strategies and objectives, for example:

What do you mean by sales targets?

Studies have shown that a sales person with a goal who understands how that goal was set and believes that there is sufficient opportunity in his or her territory will perform 5-15% higher than a comparable sales person with no explicit goal.

This doesn’t appear to be a massive difference… but if you can keep 100 or 1,000 sales reps pushing through the end of the year rather than coasting once they have made enough money to sustain their lifestyles, you can move the needle on organic revenue growth significantly.

Why are sales targets valuable?

$-

$500,000

$1,000,000

$1,500,000

$2,000,000

$2,500,000

$3,000,000

1/9/2016 2/9/2016 3/9/2016 4/9/2016 5/9/2016 6/9/2016 7/9/2016 8/9/2016 9/9/2016 10/9/2016 11/9/2016 12/9/2016

Weekly Cumulative Sales FY16

With Goal Without

GOAL

What are common issues sales targets?

o Lack of visibility into future market growth

o Over-burdening top performers with higher quotas

o Sandbagging by reps (and management)

o Negotiation of quotas favors more senior reps

o Failure to communicate quotas in a timely fashion

o Failure to communicatequota-setting methodology

o Unclear ownership of quotas

o Mid-year changes create perception of gaming

o Change management from commissions to quotas

o Meaningless quotas with no impact on pay, promotion or recognition

o Inaccurate quotas driving up sales force cost

Earnings may be up at an all-time high…

Current market situation

S&P 500 Earnings$ inflation-adjusted earnings per share

…but revenue growth has been flat, and recently declining. How is this possible?

Current market situation

S&P 500 Real Sales Growth

Earnings are being made on the back of cost and operating efficiency –rather than growing revenue.

Let’s take some of the prevailing dynamics in the market today and show how they can impact quota achievement:o Last year, Acme Corporation delivered $1 billion of revenue with 200 field sales representatives delivering on

average $5 million each. Growth in the industry is slowing a bit, from 6% to 4%. Gross margins have been 48% and are being pressured by commoditization of the core product lines. Compensation Cost of Sales is about 5%.

o The CFO would like to grow by 10% and improve operating margins from 15% to 16%, and has asked the business not to replace any employees who resign from the company. Turnover in the sales force runs 15% annually. Sales management has been able to fight for replacement of key resources in some cases (strategic account coverage, key managers, etc.) but not all.

Quota achievement is down 10-15% below best practices over the past couple of years… why?

100%

Avg. Quota: $5.0MAvg. Achievement: 104%Percent Achieving: 63%

So let’s imagine we are the head of sales for Acme and we choose to attack the year’s goals within the CFO’s parameters:o In this scenario, Acme goes into the next fiscal year with 180 field sales representatives and because there are no productivity improvement

initiatives planned, market lift will only produce $5.2 million of revenue on average. To address the CFO’s 10% growth goal and the traditional 10% buffer applied to the business plan by sales management, each rep would need to carry a $6.7 million goal.

o Through long hours and diligent performance management, let’s say the sales force produces $5.8 million on average. This still drops the percent of reps achieving goal from over 60% to about 40%.

o The company achieved less than half the CFO’s revenue growth plan. But because of the operating margin improvements, the company grows operating profit by $17 million. Finance views that as a win in terms of employee productivity, and may be willing to try the same thing next year.

This logical chain of decisions creates a dynamic that puts tremendous pressure on front-line sales, and it is a hard habit to break

100%

Avg. Quota: $6.7MAvg. Achievement: 87%Percent Achieving: 41%

Poll Question: What is your growth target for 2017?

A. Negative to Flat

B. Flat to 5% Growth

C. 5-10% Growth

D. 10-15% Growth

E. Greater than 15% Growth

Poll Question: How much buffer do you add to the business plan?

A. None

B. 0%-3%

C. 3-6%

D. 6-9%

E. Greater than 9%

Best practice is to balance the insight and skill-sets of four different functions:

Top-down approach allocates the business plan to all participating employees

Bottom-up approach identifies areas

of opportunity and market share

How are companies approaching quota-setting?

o Top-Down Simple Increase—Exclusively top down methodology where everyone gets the same growth goal (like 5%) over prior year final results or quota

o Individual Last Year Plus—Exclusively top down methodology where management gives everyone different growth goals

o Bottom-Up Sales Potential—Exclusively bottom up methodology based on cumulative sales input about client opportunity

o Fair Share—Combination of top-down and bottom-up where each rep gets allocated the gap based on market share

o Hybrid/Combination/Other

QUOTA SETTING METHODOLOGY

The degree to which internal and external factors drive quota setting

What data and inputs are typically used toset sales targets?

0%

20%

40%

60%

80%

100%

Perc

ent

of R

espo

nden

ts Not Used

Minor Consideration

Secondary Consideration

Primary Drivers (s)

Factors/Data Sources

Quota Setting Methodology by Primary Owner

Who owns quota-setting?

Primary Owner of Quota Setting

0%

5%

10%

15%

20%

25%

30%

35%

40%

45%

Sales Sales Operation

Finance HumanResources

Other No Primary Owner Identified

Perc

ent

of R

espo

nden

tsTop-DownSimple Increase

Individual LastYear Plus

Bottom-UpSales Potential

Primary Fair Share Allocation

Hybrid/Combo

The quota allocation process is interconnected with the business planning, sales coverage, and compensation design processes

Coverage CompHC BudgetLRP

Finance

HR

Sales Ops

Sales Mgmt

Sales

No

May Jan

Confirm Budget

Confirm FTEs

Calculate Potential

Yes

CalculateShare

Confirm Territories

ForecastSales

Gap?

SumForecast

Allocate Gap

Assess Impact

Review Final Model

DevelopComms

AccountPlanning

Poll Question: When do you start planning/calculating targets?

A. Q1– early, immediately after start of year

B. Q2

C. Q3

D. Q4

E. Q1– late, after everything else is rolled out

Ideal Proposed Territory & Quota Process (Moderate Detail)

Step Short Term/Long Term

Territory/ Quota/Both Category Activity Driver Ideal Timing

1 ST Both Business Planning Assess Market Marketing/Sales -26 weeks

2 ST Both Business Planning Develop Growth Goals Finance -25 weeks

3 ST Both Business Planning Confirm LTV/CAC Ratio Finance -25 weeks

4 ST Both Business Planning Assess Product Plan and Impact Marketing -25 weeks

5 ST Both Business Planning Headcount Planning Sales/HR -24 weeks

6 ST Both Territory and Quota Principles Refine Territory and Quota Principles Sales/Finance -23 weeks

7 ST Both Territory and Quota Principles Initial Principle Compliance Check Sales Operations -22 weeks

8 ST Both Assess Sales Potential Clean Internal Data IAMs/BDMs -21 weeks

9 ST Both Assess Sales Potential Obtain External Data Sales Operations -19 weeks

10 ST Both Assess Sales Potential Clean Combined Data Sales Operations -18 weeks

11 ST Both Assess Sales Potential Calculate Total Potential Sales Operations -17 weeks

12 ST Both Assess Sales Potential Calculate Untapped Potential Sales Operations -17 weeks

13 ST Both Assess Sales Potential Sum Untapped Potential for Existing Territories Sales Operations -17 weeks

14 ST Both Customer Segmentation Refine Criteria for Dividing Accounts Sales/Marketing -16 weeks

15 ST Territory Draft Initial Territories Determine Where New Headcount Will Reside Sales -15 weeks

16 ST Territory Draft Initial Territories Balance Territory Potential Sales Operations -14 weeks

17 ST Territory Profile/Target Profile Accounting Firms and Qualify Targets Sales -13 weeks

18 ST Territory Finalize Territories Finalize Sales Territories Sales -12 weeks

Ideal Proposed Territory & Quota Process (Moderate Detail)

Step Short Term/Long Term

Territory/ Quota/Both Category Activity Driver Ideal Timing

19 ST Quota Draft Top-Down Quotas Pro-Rate Quotas Based on Untapped Potential Sales Operations -12 weeks

20 ST Quota Draft Top-Down Quotas Calculate Initial "Fair Share" Quota Sales Operations -12 weeks

21 LT Quota Bottom-Up Forecast Bottom-Up Forecast Sales -12 weeks

22 LT Quota Roll-Up and Gap Assessment Roll-Up and Gap Assessment Finance/Sales -10 weeks

23 LT Quota Gap Allocation Gap Allocation Finance/Sales -8 weeks

24 ST Quota Draft Quotas Apply Quota "Sanity Check" Rules, Adjust Finance/Sales -7 weeks

25 ST Quota Draft Quotas Finalize Quotas Finance/Sales -6 weeks

26 ST Quota Draft Quotas Calculate Overlay Finance/Sales -5 weeks

27 ST Quota Draft Quotas Apply Seasonality Finance/Sales -4 weeks

28 ST Quota Quota Approval Management Review Sales -4 weeks

29 ST Both Communication Roll-out Sales +/-2 weeks

30 ST Both Administration Systems Load Finance Ongoing

31 ST Territory In-Period Adjustment Assign "Hot" New Accounts Sales Ongoing

32 ST Both In-Period Adjustment Collect/File Proposed Adjustments Commissions/Sales Ops Ongoing

33 ST Both In-Period Adjustment Quarterly Adjustments Commissions/Sales Ops Quarterly

34 ST Both In-Period Adjustment Review/Approve Adjustments Finance Quarterly

35 ST Both In-Period Adjustment Exception/Appeal Adjustments Commissions/Sales Ops Quarterly

36 ST Both Performance Assessment Review Performance Commissions/Sales Ops +26 weeks

Knowing the RUN characteristic of a business can provide better insight into the sub-components for goal-setting and productivity improvement

2013-14 U.S. Product & Service RUN Analysis(Retention, Upsell, New Business Acquisition)

$’000, %

$45,661$56,020

2013Revenue

Retention Penetration Acquisition 2014Revenue

-34% +39%

+17%

$27,592

Observationso Retention is out of line with market practices

o Upsell (penetration) is over-performing and new business acquisition is in range with best practices for a business of similar type and size

o For B2B sales forces appx. 25-75% of the companies usually fall within the following RUN ranges:

o Retention = 80-90%o Upsell = 15-25% o New = 5-15%

2013 US Product Revenue

Retention Penetration Acquisition 2014 US Product Revenue

$39,503

-10% +38%+15%

2013 US Service Revenue

Retention Penetration Acquisition 2014 US Service Revenue

$16,517

-70% +41%

+20%$18,069

U.S. Product

U.S. Service

Further examination is required to assess if low retention is due to actual

loss of customers or change of channel

Upsell NewRetention

Upsell New

Considering hiring practices, onboarding techniques and typical ramp-up may push companies to use ramped goals in the first year

0

50

100

150

200

250

300

350

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22

Month After Hire

ASP

Avg - New Hire Avg - All DMs Low 1/3 Mid 1/3 Top 1/3

Top 1/3 of New Hires

Bottom 1/3 of New Hires

Middle 1/3 of New Hires

Average of All New HiresAverage of All AMs

Month After Hire

$K

In the next few 4 weeks:

o Revisit headcount plan

o Remove excess buffer from the goals

o Confirm top reps aren’t punished or given a pass

o Speed up the process

o Improve the communications

What can you do next to improve your sales targets?

In the next 4 quarters:

o Re-evaluate sales territories for potential

o Acquire more/better external data

o Designate a total process owner

o Ensure both top-down and bottom-up elements are in the process

o Acquire/develop enhanced planning tools

Add External Data Listen to Bottom-Up Forecast

Close Gaps Engage Sales Force

Poll Question: What improvements will you make in 2017?

A. Improve internal data collected

B. Improve external data used

C. Designate clear owner of the process

D. Start earlier

E. Purchase/deploy systems and tools to support goal-setting

The sales performance management webinar series

ANAPLAN.COM/SPM-SERIES

© Copyright 2017 The Sales Management Association. All rights reserved.

Your Questions

28

ScottSands

Partner

AonHewitt

scott.sands@aonhewitt.com

RowanTonkin

HeadofSales&MarketingSolutions

Anaplan

rowan.tonkin@anaplan.com

© Copyright 2017 The Sales Management Association. All rights reserved.

Thank You

ThankYou