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No sales compensation standard is more sacrosanct than the commission check.  You follow the rules in closing a deal, and receive the appropriate percentage of the order in a subsequent pay period. Right?  Well, that’s not exactly the case in this age of analytics, and a new Aberdeen Group report tells quite the unusual story.

If there was ever a time to drop the pretense that salespeople can’t handle data, now is that moment.

“Keep it simple for your sales reps; they aren’t technical wizards.” “Just give them a simple comp plan so they understand it and are motivated to sell.” “Never trust a salesperson’s forecast: it’s inevitably sandbagged or rose-colored.” How many times are these old phrases still uttered daily in the modern, B2B sales landscape?

Tradition #1

Professional sellers have long been considered quite adept in possessing certain skills — schmoozing, pressuring, and closing — at the expense of others, such as honesty, objectivity, or the ability to handle new technology or complex data. This neatly fit into the perception of colleagues who considered salespeople to be overpaid, expense account-abusing, dumb jocks who sold themselves into their cushy jobs and simply had to be tolerated by their under-appreciated, smarter co-workers.

Tradition #2

The simple, standard way in which most B2B reps are compensated — with a moderate base salary and commissions based on a percentage of business they close — contributes to the above-referenced perceptions of individual contributors as selfish. Naturally motivated by money, why should they drive toward any business outcomes other than maximizing the gross revenue of their deals?

Times, however, are rapidly changing. It’s cited in the Aberdeen report,  No Longer Sitting at the Kids’ Table: Sales Management Finally Grows Up (June, 2015) that the majority of sales leaders 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. This is a remarkable departure from most long-held sales management styles, which dictate that simply selling as much product as possible (and worrying about margin later) was an appropriate, straightforward, and singular marching order. Even quite recently, in 2014 Aberdeen research, 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 (Figure 1).

Figure I: My, How Sales Management Times are Changing

This evolution can be attributed to any number of sources.  Aberdeen’s discussions with end-users informally reveal a recent up-tick in the existence of “Chief Revenue Officer” titles, typically representing the promotable position to which SVP’s of Sales aspire. C-suite titles are not lightly distributed by corporate boards, however, and naturally are reserved for those individuals who have proven their ability to run a business within the business. Aberdeen research shows that Chief Marketing Officers, for example, have for many years been held accountable less for activities (numbers of registrants, clicks, eyeballs) and more for sales-oriented business results, such as Return on Marketing Investment (ROMI). Another explanation for these changes in sales management style can be attributed to economic lessons learned from the late 2000’s Great Recession, with cautious approaches to profit-and-loss firmly entrenched in the minds of business leaders.

Regardless of the source of such significant change, current research reveals another striking finding that flies in the face of the above-mentioned traditions. Almost on a whim, a recent Aberdeen research survey included a question about whether sales managers’ or reps’ income might be affected by the accuracy of sales forecasting estimates. End-user discussions had recently begun to reveal that some sales organizations are holding a percentage of commission or bonus income — no matter what small or large proportion — accountable to how precise, or imprecise, the estimates of deal size, timing, and profits turned out to be. The results?  Nearly one-third (32%) of survey respondents indicated this to be true for sales managers’ income, and one-quarter (25%) report the same for sales reps’ compensation.

Let’s stop for a moment and consider how radical this development really is. Aberdeen’s Sales Performance Management (SPM) research typically seeks to provide validation of multi-faceted sales compensation techniques, but nevertheless shows that 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%). In other words, traditional commissions-for-selling continues to dominate as a singularly deployed method of motivating and compensating B2B sellers. And yet, the need for more accurate 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. Moreover, this carrot-and-stick mindset is more aggressively adopted by Best-in-Class firms, compared with under-performing organizations (Figure 2).

Figure 2: Deploying a New Generation of Carrots and Sticks

Here, we see that the percentage of top performers holding their sales managers financially and personally accountable for forecast accuracy approaches the one-half mark, while the rate drops to 29% among all other firms. Predictably, these fractions are lower when applied to individual contributors, because these employees 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 sales management techniques.

Read the full report here.

 

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