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Why is There a Debit on My Commission Check?

"Never trust a salesperson's forecast: it's inevitably sandbagged or rose-colored." "Keep the technology simple for your sales reps; they aren't brain surgeons." "Just give them a simple comp plan so they understand it and are motivated to sell."

How often are these old phrases still uttered daily in the modern B2B sales landscape?
 
There are a couple of well-established traditions in the enterprise sales ecosystem. For starters, individual contributors have long been considered adept in possessing certain skills — schmoozing, pressuring, and closing — at the expense of other abilities, such as honesty, objectivity, or the ability to handle new technology or complex data. Next, they’ll do anything to seal the deal, right? Even if it means cutting into their employer’s profit margin?  

Finally, layer on the simple, standard way in which most B2B reps are compensated — a moderate base salary, with commissions based on percentage of business they close — and such perceptions of individual contributors as selfish and simple grow into a self-fulfilling prophecy that may be true. After all, if salespeople are naturally motivated by money, why should they drive toward any business outcomes other than maximizing the gross revenue of their deals?

And yet, times are rapidly changing.  We learn in No Longer Sitting at the Kids' Table: Sales Management Finally Grows Up that the majority of sales leaders (58%) now consider “bottom-line management responsibility” —  i.e., profit-sensitive — to be their priority, with Best-in-Class firms leading under-performers, 74% to 51%, in adopting this evolved approach. 

Think about this remarkable departure from most long-held sales management styles, which dictated that simply selling as much product as possible — and worrying about margin later — was an appropriate, straightforward and singular marching order. Even in 2014, most companies ran the sales organization as a top-line function, compared with only about one-third caring about the profit achieved on such revenue. 

This tidal shift is not alone: my current research reveals another striking finding that flies in the face of the above-mentioned traditions.  End-user discussions have recently begun to reveal that some sales organizations are holding a percentage of commission or bonus income – for both sales leaders and individual contributors – accountable to the accuracy of internal sales forecasting.  Hold on…did you just read that correctly?  Yes: the complex, modern era of B2B selling has evolved to the point where 32% of companies now associate variable sales manager compensation — no matter what small or large proportion — with how exact, or imprecise, the forecast estimates of deal size / timing / profits turned out to be. Perhaps even more striking is that at the individual contributor level, 25% of enterprises are doing the same. 

Think about how radical this scenario really is. Aberdeen's Sales Performance Management research validates multi-faceted sales compensation techniques, but still confirms what we all assume: traditional individual financial compensation is 85% more frequently used as a motivator than the next nearest element: internal recognition for positive performance results (76% vs. 41%). So, money still speaks the loudest.

But the need for better sales forecasting has become so vital to the enterprise that the sacred sales commission itself is no longer immune to how well, or poorly, sales professionals predict how their deal-making activities will turn out. To drive home the point, this carrot-and-stick mindset is more aggressively adopted by Best-in-Class firms, compared with under-performing organizations: 

Figure 1: Hard to Believe…But This is a Thing


Predictably, top performers hold their sales managers financially and personally accountable for forecast accuracy more than with reps, who are typically expected to focus more on their individual territories, and less on the big corporate picture. It should be pointed out that not a single one of 99 Laggard organizations has elected to take this approach, further validating Aberdeen's positioning of such companies as poor performers that neglect to consider or adopt changing, 21st-century sales management techniques.

Why, we should ask, are enterprises bothering to influence sales forecast accuracy so aggressively?  Is it a coincidence that this trend coincides with the new margin-sensitive mentality?  Definitely not.  We have to realize that the sales forecast has become far more than a parlor game, and now impacts all the other lines of business – supply chain, customer service, logistics, Human Resources, IT – that are today expected to run as leanly as possible.  These folks depend more than ever on the sales team providing an accurate prediction into what their future business will look like.  Hence, the need for better planning, company-wide, feeds back into the need for sales leaders to take aggressive action – remunerative, punitive, whatever it takes – around tightening up their crystal ball activity.  Deploying more robust reporting and analytics tools then become the sensible, default initiative to achieve this goal. 

Another way of looking at this sea change is when we compare adopters of this approach with companies yet to buy in. From a sales KPI perspective, organizations that tie forecast accuracy to sales compensation report higher customer renewal rates and shorter average sales cycles, and on a year-to-year basis, out-perform non-adopters around improving total company revenue, average deal size, and customer retention. Comp/forecast-integrated firms also place a greater emphasis on best practices to support this approach: 79% more likely to implement formal win/loss and deal abandonment protocols, 21% more often holding regular rep/manager forecast reviews, and nearly three-times more focused on “optimizing leads and territories based on data insight into predicted success rates.”

Productivity is everything in managing a modern sales organization, and my research is dedicated to helping contemporary Sales Ops practitioners minimize the barriers that, every day, seem to be thrown in the way of making it easy for their team to hit their numbers. If, like so many Industry Average or Laggard companies, your organization is suffering from: 

  • Gut-driven, data-light decision-making
  • A CRM that too closely resembles a glorified Rolodex
  • Disconnects between sales compensation planning and eventual performance outcomes
  • Annoying friction in the late-cycle process of getting quotes and proposals into the field
  • Uneven territory results and no idea how to fix them

…then this series of blogs has been explicitly designed to help you learn from your Best-in-Class peers, contemporaries, and competitors.  By emulating their best practices and technology initiatives, you’ll no doubt see your metrics improve, and hopefully join their performance ranks before long.

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