Fiscal Year Transition: Seven Mistakes to Avoid

Fiscal Year Transition: Seven Mistakes to Avoid

At the beginning of the new fiscal year, incentive programs are rolled out with the best of intentions. However, half of the time, they do not produce the desired results. When properly implemented, incentive programs are highly effective at motivating behaviors and driving profitability, but when poorly executed, they cause frustrations and can hinder achievement of business outcomes. Avoid these common mistakes to better align your incentive programs with your business strategy to drive winning outcomes.

1. Overly Complicated Plans– When incentive plans are too complex, salespeople get frustrated because it is not clear what it takes to succeed. To avoid this, keep plans straightforward to enable the alignment of sales efforts and company goals. A well-designed plan should have at most 3 performance measures.

2. Disconnected Payouts– Commission payments are often made months after the sale is closed. In some cases, the credit is earned at the time of booking, but commission is paid at the time of invoicing. Since salespeople have no control over delivery or invoicing this delay is discouraging as they are typically driven by instant gratification. Minimize lag time between the commission earning activity and the payment of the reward so that salespeople can connect the dots between performance and reward and stay motivated.

3. Mid-Year Plan Changes– In a rush to roll out the commission plans for the new year sales leaders often skip the details and don’t iron out intricate details of all plan components. This often leads to unexpected business outcome and mid-year plan adjustments. Making mid-year changes to annual plans is extremely confusing to salespeople and must be avoided at all costs. Start the plan design exercise early so you have sufficient time to do proper modelling.

4. Lack Of Communication– Poorly communicated plans can cause confusion and lead to failure. Communicate the plans for the new fiscal year clearly with elaborate examples and graphical representations of possible sales and commission earnings. Terms and Conditions of the plans, which are often dictated by HR and Legal, should be rolled out as a separate document so that salespeople can focus on the inner workings of their compensation plan.

5. Re-tooling of Commission Calculation Platform – Depending upon the extent of the changes, it may take weeks, sometimes months, for your IT team to build the new plan logic in your commission systems. Some of the proposed changes may not even be feasible. Involve your systems team in the planning process so they can recommend on automation feasibility and timelines for the first payout.

6. Draws for the first payout – Commission payouts for the first month/quarter are often not paid as per actuals, but as Draws. If you plan to do it that way, communicate to salespeople early on. Don’t surprise them with Draws because the plan design or the system was not ready in time.

7. Commission Statements Redesign– If you are making significant plan changes, you must not only redesign the system for commission calculation, but also redesign the commission statements. If salespeople don’t’ understand how the commission is being calculated, the incentive plans don’t provide any motivation. Involve system analysts and BI experts in Planning process, so they have time to revamp the statements and dashboards.

Quota Setting Methodologies

Quota Setting Methodologies

Sales compensation plan design is done assuming sales organization’s ability to set company wide goals, and more importantly set quotas at the territory and individual rep level. Ability to do so is important as it reflects their understanding of the market situation. Without a reliable quota setting process and territory-level understanding of sales potential, one can neither plan the resources, nor properly motivate the sales team.

So, what are most common quota setting methodologies? Unfortunately, there are many, and that makes the job much harder. Below, we describe some of the common methodologies.

1. Top-Down Allocation:

Under this method, the sales management and the executives set the corporate goal for the year based on their analysis of market situation and their internal business plans. This top-level goal is then distributed downward amongst various Regions, Countries, Divisions and all the way down to the individual territory or salesperson.

This methodology works best for long standing stable markets and products, with no significant market disruption or new product launches expected in the year. Though, not very scientific, this approach is often embraced for its simplicity.

2. Bottoms-Up Allocation:

Also, known as ‘grassroot’ approach, in this method, every individual salesperson estimates the sales potential of his/her territory. Next level manager reviews the estimates from everyone in the team and submits the aggregated estimate upwards. The process continues all the way to the top such that the goal of the company is an aggregation of individual estimates, with minor top level adjustments of course.
This methodology works best when individual territories have vastly different potential or if the sales are heavily dependent upon the capabilities and relationships of the individual salesperson in the territory. This method ensures full accountability from the salesperson. It works best when sales management has trusted relationships with individual reps.

3. Hybrid of Top Down and Bottoms Up:

This is one of the most common approaches. Top leadership provides the company wide goals, while every individual salesperson also comes up with his/her own estimate for the territory. Mid-level managers and executives in Sales and FP&A puts the two together and run a bunch of analysis. They aim to adjust the quota for individual territories, such that the aggregated number comes as close as possible to the company’s goal. This is a balancing act, and if not done intelligently, may alienate the salesperson.
This approach is best suited for market situations that are still evolving, especially if the company is launching new products and services.
This approach requires sophisticated modelling and planning tools, that allows multiple team members to collaborate on analysis and planning. Middle management has to play an important role ensuring that both, the top management and individual salesperson, understand each other’s challenges.

4. Prior-Year Uplift:

Simple to adopt and understand. Take last year’s quota and apply a certain percentage increase to everyone. The FP&A and sales leaders work together to determine what that percentage should be, but whatever it may be, everyone gets impacted equally.
This approach is suited only if both, the industry and the company, are somewhat static. If there is new competition entering the market, or the company is tweaking its products or services, this approach may not work.

Besides above four, there are several other methodologies to set the quotas, such as – survey of buyer’s intentions, industry forecasts and estimating the percentage of total addressable market (TAM). New territories require more analysis and modelling, for lack of historical data.

Choosing the right quota methodology is very important and one should pick the approach that is best suited for the company.

Sales Compensation: Plan Design Fundamentals

Sales Compensation: Plan Design Fundamentals

Developing a sales compensation plan takes hard work, careful planning, and constant monitoring. Plan designers must deal with diverse opinions amongst stakeholders about the right plan design for the sellers. Hence it becomes extremely important to understand and embrace the plan design fundamentals. It is also important to educate all stakeholders on these concepts so that everyone follows a common framework.

Align the Plan with the Strategy and Job Roles

The foundations of a successful sales compensation program are – a clearly articulated sales strategy and a well thought out coverage model. The coverage model refers to the deployment of sales resources such as field sales, tele-sales and channel partners to pursue the sales strategy.
Every sales role must be defined in terms of its critical success factors, role descriptions, and competencies. Are the Base Pay, Draws and Performance Measures aligned with the job role, or do your pay components reflect a job that has changed over time? The job’s critical success factors should provide direction on Target Incentive, Pay Mix, and Performance Measures. Determine the correct relationships between these components based on the top three job priorities for each role.

Pick the Right Measures

Performance measures represent the top sales priorities of each job. These typically include financial measures, strategic measures, and may include leading indicators of success. Consider whether performance measures directly mirror the sales strategy and each job’s critical roles. Do relationships between measures (weights, links, hurdles, multipliers) represent the organization’s priorities? Does the plan communicate objectives to the employee in the clearest way or is the message complicated by unnecessary elements?
Common mistakes are too many measures, wrong measures, duplicate measures, and measures that can’t really be measured. Best-in-class plans rarely use more than three primary measures. Any measure that represents less than 10% of target incentive is often perceived by sales team as somewhat irrelevant, and doesn’t provide any motivation. Don’t create a plan that allows reps to pick and choose, or creates confusion about what’s important to the organization.
Incentives implemented to push the sales of strategic products or cross-sell often lead to duplicate and redundant measures, causing confusion to the plan.

Define Crediting Rules

Crediting rules are the basic building block of every sales compensation program. Sales crediting rules define when and how much of the sales is assigned to the salesperson for quota retiring and compensation calculation. Assign sales credit only when salespeople have completed their customer tasks regarding the order. This might be when the order is booked, when the order is invoiced, or at the receipt of cash.

A well-designed plan ensures that all sales roles have the same crediting event. While sometimes it becomes necessary to split sales credit between booking and invoice, this introduces calculation as well as reporting complexity. It’s best to select one point in time to credit sales.

Develop a Clear Connection Between Pay with Performance.

The sales compensation plan, at its core, is a tool to communicate business objectives and reward for the attainment of those objectives. Does your plan pay for revenue, profit, growth, base retention, or other priorities? Does your plan reward for dysfunctional behaviors or gaming? Total pay, total incentives and other pay components for each plan measure should be tightly linked to the company’s critical measures of success and should clearly communicate how pay is associated with each performance result. If a simple regression analysis shows a pay to performance correlation of less than 0.5 for your most important business measures, then the plan may be off-track.

Communication is Key

Unless communicated effectively, even the best of plans can fail miserably. It is your responsibility to improve the clarity of sales compensation plans. Sales personnel should not have to guess on the complicated incentive designs. Ensure that every complicated plan component is explained with the help of examples, including corner cases.

Plan design is not rocket science when fundamental design principles are followed. Align the jobs, pick the right measures, use unified and simple crediting policy, connect the pay with performance, and communicate well.

Territory Management: Creating A Winning Battle Plan

Territory Management: Creating A Winning Battle Plan

As we march towards the start of a new year, the annual ritual of territory planning is upon us. Effective planning and management of sales territories can boost the sales team’s morale and increase sales. But since this process kicks in just once a year, most companies don’t have a well-defined operationalized process to plan the territories. In most small-mid size companies it is up to specific individuals who decide based upon guts and instincts, instead of data-based insights.

Here is my take on how to create a successful battle plan for defining and managing territories.

  1. Go-To-Market Strategy

There are numerous ways to define a territory using attributes such as Geography, Customer Segment, Customer Size, Demographics etc. To set up effective territories, sales leaders must first understand their business environment and their Go-To-Market (GTM) strategy for the year.

Knowing your GTM strategy and your business priorities are the first step towards defining the territories.

  1. Market Analysis and Segmentation

Before you can develop an effective sales territory plan, you need to take stock of your existing clients, prospects and leads. Start by grouping your customers and prospects based on location, industry vertical, purchase history, size, etc.

Not only must you know who your current and future customers are located, but you should also be able to answer the following questions about each group:

  • What are your customers buying? Are certain solutions, services, or products outperforming others?
  • Why are your customers buying?
  • Which causes prospects to not buy?
  • What is your conversion rate? Where do conversions tend to drop off?

Answering these questions will help you spot overarching trends in the market and better craft your territories.

  1. Evaluate Sales Reps

After the GTM strategy and market opportunities are analyzed, it is time to take a closer look at your team.

Assigning sales reps to the territories where they can perform best is key to effective territory management. Sales rep’s placement will depend on their performance and experience, as well as the account and territory assessments.

When evaluating sales reps, two assessments should take place: one for quantitative performance- the number of accounts the rep has, the number of new contacts the rep has contributed, the conversion rate for leads to opportunities, etc., and another for qualitative performance -Does the reps have the skills and ability to be successful with this group of customer? For instance, if the territory has customers who prefer in-person meetings, you should pick the sales rep who can be available for in-person meetings without requiring too much travel or budget.

  1. Define Territory Specific Targets

Whether you are mapping out a new territory management plan for the whole team or redefining a specific rep’s sales territory, it is always best to set clear and measurable goals specifically defined for that territory.

Distributing the company’s Targets/Quota evenly across all territories is often not the most effective way to manage the territory. In determining territory-specific targets, one should consider factors such as – pipeline (vault size), purchase history of customers, marketing initiatives planned for that territory, and market research on customer sentiment.

  1. Communicate

All the effort put in defining territory and targets will go waste if the sales rep is not onboard with the GTM strategy or the reasons why the target quota is attainable. It is important for sales management to have 1:1 communication with each sales rep to answer concerns and ensure that the sales rep is motivated and excited about the potential of the territory.

  1. Ongoing Evaluation

Territory planning is considered an annual task, but it should not be. Your sales team is constantly changing, and so is the potential of the territory. As new leads enter the funnel the workload of the sales team needs to be managed on an ongoing basis, at least quarterly if not more often. If you notice that a rep or territory is underperforming, it’s crucial to get to the root of the problem and modify the sales territory management plan as necessary.

One should not be afraid of making mid-year changes when needed. Mid-year changes, though painful to administer, provide the much-needed course correction and new impetus to the sales team for long term success.

An effective Territory management plan can help spread out the workload for your sales team, allowing them to complete tasks more efficiently, build better customer relationships, and increase the good-quality leads that they get. Just as important is the motivation it provides to your sales team if they feel like they are being productive and accomplishing a lot of the sales goals they set out to achieve.

Xactly Unleashed: Adapt or Die

Xactly Unleashed: Adapt or Die

When we signed on as a sponsor for Xactly Unleashed, we expected to meet thousands of Xactly customers in person, shaking hands, and enjoying some food and drink with them over a few days of keynotes, technical sessions and other activities.

Well … as they say, the best laid plans …

Instead, Xactly pivoted quickly and transitioned its annual user conference from a live conference to a virtual event. This is an example of the event’s major takeaway – Adapt or Die. Steven Colstad, one of our team members who participated in the event commented, “As businesses struggle to keep pace with the new normal, those that are loyal to dated home-grown technologies, or those that don’t adopt the latest technologies will not stay relevant or competitive. Consequently, they will die.”

Xactly Unleashed highlighted how Xactly’s technology can help you adapt – something that is vital in today’s COVID-19, uncertain economy. Xactly’s solutions can help you adapt by:

  • Motivating your sales team with proper sales planning and strategies that be quickly deployed
  • Compress your Go To Market (GTM) strategy
  • Introducing best practices for compensation payout accuracy (90%+ accuracy!)
  • Resolve compensation disputes, avoiding sales team flight risks, with blazing-fast processing times

Little is certain. What is certain is that your business has changed in the last few months. Maybe it is booming. Maybe it is struggling. Are you thinking about how you can adapt or die? Have you considered how a sales performance management solution help you adapt to your changed business environment?

BTW – if you missed the event and would like to watch it, all the sessions are available on demand.