Monday, August 10, 2009

Are companies adjusting sales comp plans due to the slow economy?

From our experience, I would say that most companies are making some kind of adjustment due to the economy. If your expected total sales are down, you have several options that we've seen recently:

1. Reduce quotas and...
a. Hold commission rates constant (sales people would then earn less when they hit quota than they did when quotas were higher)
b. Raise commission rates (to keep sales people whole year over year)

2. Hold quotas constant, along with commission rates and...
a. Add earnings opportunities in the form of MBOs or SPIFFs to keep sales people whole and reward them for building for the future (training/preparation to sell complex products or improve selling skills, introductions to prospects who can't necessarily buy this year, but maybe next year,...)
b. Reduce the number of sales people so that fewer people cover larger territories and those remaining can actually have productivity and earnings levels similar to prior years (at a cost that is affordable to the company)
c. Make no changes and expect sales people to under-perform and under-earn, but be ready when the market comes back with sales people to serve your full market potential

Among our clients, we are mostly seeing 1.a. and 2.b. - with ample discussion of the other options.

Monday, August 03, 2009

New Business vs. Account Management roles in Professional Services

In professional services, do you compensate differently in your sales plans for "new" business vs. maintaining an account to incent your best "prospectors" to develop new business? What are the best and worst elements of plans you have seen that do this?

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I'd say that your best course would depend on both the company strategy and the way you have defined your selling roles.

If your strategy is focused on penetration of existing accounts, then the sales you most value might be those in your current accounts (this tends to be true with mature companies who have some kind of relationship already with most of their key prospects).

For the majority of our clients, new business is very important. You'll have to be clear about what counts as "new" - a new "logo" (new company name...), a new buying entity (maybe a new division/location in an established customer could be counted as new), a new service offering (generally one that does not replace an older legacy service they have been buying). Generally "new" business (however you define it) takes more time and effort to win than renewal or penetration business, and for that reason you'll need to reward for it at a higher level in order to keep sales people focused on it.

Another approach successfully employed by companies with enough sales people to do this is to separate "Account Management" from "New Business Sales" so that different people/teams are responsible for those different selling activities. This may not be practical in a small sales force - but once a company achieves enough scale to operate this way it allows the focus of those who love the new business hunt to be where they do their best work, and those who love the longer-term relationships and more nurturing selling role can focus on managing and growing existing accounts. If you do end up splitting the role into Account Managers and New Business Hunters (sometimes called Sale Executives), you will probably want to have different pay plans for those two roles (e.g., quota bonus with a threshold and significant acceleration for over-quota performance for Account Managers; first dollar commission with lower quotas and less acceleration for New Business Sales).