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© Copyright 2017 The Sales Management Association. All rights reserved.
Sales Management Association Webcast
19 January 2017
Sales Performance Management Series Webcast 5: Aligning Sales, HR, and Finance with Effective Sales Targets
Scott SandsPartner, Sales Force EffectivenessAon [email protected]
Rowan TonkinHead of Sales and Marketing [email protected]
2© Copyright 2017 The Sales Management Association. All rights reserved.
About The Sales Management AssociationA global, cross-industry professional association for sales operations and sales management.Focused in providing research, case studies, training, peer networking, and professional development to our membership. Fostering a community of thought-leaders, service providers, academics, and practitioners.www.salesmanagement.orgwww.salesmanagementconference.com 16 – 18 OCTOBER 2017 ATLANTA
3© Copyright 2017 The Sales Management Association. All rights reserved.
Today’s Speakers
Scott SandsPartner, Sales Force EffectivenessAon [email protected]
Rowan TonkinHead of Sales & Marketing Solutions
Presented by
© Copyright 2017 The Sales Management Association. All rights reserved.
Sales Management Association Webcast
19 January 2017
Sales Performance Management Series Webcast 5: Aligning Sales, HR, and Finance with Effective Sales Targets
Scott SandsPartner, Sales Force EffectivenessAon [email protected]
Rowan TonkinHead of Sales and Marketing [email protected]
The traditional planning to performance pathway
Account
Segmentation
and Scoring Capacity Planning and Management
Marketing
Budget
Allocation Marketing
Campaign
Planning
Compensation Planning
Deal Desk Crediting
Marketing
Attribution
Territory Planning and ManagementQuota Planning and Management
Forecasting Commissions
Campaign
Performance
ManagementMarketing
Spend
Management
Account
Planning
The connected pathway to smart sales performance
Account Segmentation and Scoring
Capacity Planning and Management
Marketing Budget
Allocation
Marketing Campaign Planning
Compensation Planning
Deal Desk
Commissions
Marketing Attribution
Territory Planning and Management
Quota Planning and
ManagementForecasting
Crediting
Campaign Performance Management
Marketing Spend
Management
Account Planning
Topics for todayo 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
oDouble in size over the next five years
oDeliver $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 $550
million
o Increase net promoter score to 32%
o Reduce cost of sales to 5.0%o Reduce days of sales outstanding
to 38o Improve solution selling capabilityo And many others…
There are several types of sales targets (or goals or quotas) that can result from long- or short-term strategies and objectives, for example:
What do you mean by sales targets?
Studies have shown that a sales person with a goal who understands how that goal was set and believes that there is sufficient opportunity in his or her territory will perform 5-15% higher than a comparable sales person with no explicit goal.
This doesn’t appear to be a massive difference… but if you can keep 100 or 1,000 sales reps pushing through the end of the year rather than coasting once they have made enough money to sustain their lifestyles, you can move the needle on organic revenue growth significantly.
Why are sales targets valuable?
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$-
$500,000
$1,000,000
$1,500,000
$2,000,000
$2,500,000
$3,000,000
Weekly Cumulative Sales FY16
With Goal Without
GOAL
What are common issues sales targets?o Lack of visibility into future
market growthoOver-burdening top performers
with higher quotaso Sandbagging by reps (and
management)oNegotiation of quotas favors
more senior repso Failure to communicate quotas
in a timely fashiono Failure to communicate
quota-setting methodology
oUnclear ownership of quotasoMid-year changes create
perception of gaming
o Change management from commissions to quotas
oMeaningless quotas with no impact on pay, promotion or recognition
o Inaccurate quotas driving up sales force cost
Earnings may be up at an all-time high…Current market situation
S&P 500 Earnings$ 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 FlatB. Flat to 5% GrowthC. 5-10% GrowthD. 10-15% GrowthE. Greater than 15% Growth
Poll Question: How much buffer do you add to the business plan?
A. NoneB. 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%
Prior
actua
l sales
resul
ts
Prior
quota
attai
nmen
t %
Market
poten
tial
Curren
t mark
et sha
re
Geogra
phic m
arket
growth
or d..
.
Units in
place
, lease
life,
etc.
Sales
Rep e
xperi
ence
Manag
er jud
gmen
t
Market
econo
mic dataPe
rcen
t of
Res
pond
ents
Not Used
Minor ConsiderationSecondary ConsiderationPrimary 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
ts Top-DownSimple Increase
Individual LastYear PlusBottom-UpSales PotentialPrimary Fair Share AllocationHybrid/Combo
The quota allocation process is interconnected with the business planning, sales coverage, and compensation
design processesCoverage 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 yearB. Q2C. Q3D. Q4E. Q1– late, after everything else is rolled out
Ideal Proposed Territory & Quota Process (Moderate Detail)Step Short Term/
Long TermTerritory/ Quota/Both Category Activity Driver Ideal
Timing
1 ST Both Business Planning Assess Market Marketing/Sales -26 weeks2 ST Both Business Planning Develop Growth Goals Finance -25 weeks3 ST Both Business Planning Confirm LTV/CAC Ratio Finance -25 weeks4 ST Both Business Planning Assess Product Plan and Impact Marketing -25 weeks5 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 weeks9 ST Both Assess Sales Potential Obtain External Data Sales Operations -19 weeks
10 ST Both Assess Sales Potential Clean Combined Data Sales Operations -18 weeks11 ST Both Assess Sales Potential Calculate Total Potential Sales Operations -17 weeks12 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 weeks16 ST Territory Draft Initial Territories Balance Territory Potential Sales Operations -14 weeks17 ST Territory Profile/Target Profile Accounting Firms and Qualify Targets Sales -13 weeks18 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 weeks21 LT Quota Bottom-Up Forecast Bottom-Up Forecast Sales -12 weeks22 LT Quota Roll-Up and Gap Assessment Roll-Up and Gap Assessment Finance/Sales -10 weeks23 LT Quota Gap Allocation Gap Allocation Finance/Sales -8 weeks24 ST Quota Draft Quotas Apply Quota "Sanity Check" Rules, Adjust Finance/Sales -7 weeks25 ST Quota Draft Quotas Finalize Quotas Finance/Sales -6 weeks26 ST Quota Draft Quotas Calculate Overlay Finance/Sales -5 weeks27 ST Quota Draft Quotas Apply Seasonality Finance/Sales -4 weeks28 ST Quota Quota Approval Management Review Sales -4 weeks29 ST Both Communication Roll-out Sales +/-2 weeks30 ST Both Administration Systems Load Finance Ongoing31 ST Territory In-Period Adjustment Assign "Hot" New Accounts Sales Ongoing32 ST Both In-Period Adjustment Collect/File Proposed Adjustments Commissions/Sales Ops Ongoing33 ST Both In-Period Adjustment Quarterly Adjustments Commissions/Sales Ops Quarterly34 ST Both In-Period Adjustment Review/Approve Adjustments Finance Quarterly35 ST Both In-Period Adjustment Exception/Appeal Adjustments Commissions/Sales Ops Quarterly36 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
improvement2013-14 U.S. Product & Service RUN Analysis
(Retention, Upsell, New Business Acquisition)$’000, %
2013 Revenue
Retention Penetration Acquisition 2014 Revenue
$45,661
$56,020
-34% +39%+17%
$27,592
Observationso Retention is out of line with market practiceso 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 Prod
uct R
even
ue
Retenti
on
Pene
tratio
n
Acquis
ition
2014
US Prod
uct R
even
ue
$39,503-10% +38
%
+15%
2013
US Serv
ice Rev
enue
Retenti
on
Pene
tratio
n
Acquis
ition
2014
US Serv
ice Rev
enue
$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
AS
P
Top 1/3 of New Hires
Bottom 1/3 of New Hires
Middle 1/3 of New HiresAverage of All New HiresAverage of All AMs
Month After Hire
$K
In the next few 4 weeks:o Revisit headcount plano Remove excess buffer from the goalso Confirm top reps aren’t punished or
given a passo Speed up the processo Improve the communications
What can you do next to improve your sales targets?
In the next 4 quarters:o Re-evaluate sales territories for potentialo Acquire more/better external datao Designate a total process ownero Ensure both top-down and bottom-up elements
are in the processo 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 collectedB. Improve external data usedC. Designate clear owner of the processD. Start earlierE. Purchase/deploy systems and tools to support goal-setting
The sales performance management webinar series
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30© Copyright 2017 The Sales Management Association. All rights reserved.
Your Questions
Scott SandsPartner
Rowan TonkinHead of Sales & Marketing
SolutionsAnaplan
Did we run out of time before we got
to your question?
Presenters can follow-up with you via email. Feel free to submit more
questions if you’d like an offline response.
31© Copyright 2017 The Sales Management Association. All rights reserved.
© Copyright 2017 The Sales Management Association. All rights reserved.
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