The Future of Selling - Understanding This Crucial Sales Competency is More Important Than Ever

Posted by Dave Kurlan on Wed, Apr 12, 2017 @ 13:04 PM

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Image Copyright donskarpo

While much about selling has changed in the past 10 years, most of the science behind sales excellence has not changed at all.  While there have been a few changes to the 21 Sales Core Competencies, most of them have remained the same as well.  Most of the average scores in those 21 Sales Core Competencies, as well as the percentage of salespeople with gaps in those Core Competencies, don't change much either.  However, Sales Motivation is one competency where the changes have been dramatic over a very short period of time and today I want to share those changes, as well as how the changes impact salespeople, sales leaders and sales organizations.

Definitions - Let's clarify the difference between Desire for Success in Sales and Sales Motivation. Desire is how badly a salesperson wants to achieve greater success in sales.  Motivation is the "what" behind that Desire.  What is driving that Desire?  Desire and Motivation are part of a triad of sorts, with the third, and most important piece being Commitment to achieve greater success in sales.  It doesn't matter how strong the Desire is if the Commitment isn't there.  And it's with that triad where some of the changes are occurring.  Many companies are hiring recent college graduates to fill inbound and outbound lead generation roles or, in other words, appointment setting roles.  Many of these kids haven't chosen sales and they tend to score low on both Desire and Commitment.  And that's where Motivation comes in.  At least there's that.  But there have been dramatic changes with Motivation.

Changes - During the time that Objective Management Group (OMG) has been measuring both intrinsic and extrinsic motivation in salespeople, we have seen a tremendous shift over a relatively short number of years.  For example, in 2007, 54% of the sales population was extrinsically motivated.  Four years later, in April of 2011, I reported that 50% fewer salespeople were money (extrinsically) motivated, bringing the percentage to just 27%.  Fast forward another 6 years to April of 2017 and when we look at the most recent 350,000 salespeople to have been assessed, the percentage is down an additional 70% to just 8%!

Would you like to see the data and the average scores in all 21 Sales Core Competencies?  You can!  Our brand new site shows you the average scores for all salespeople, the top 10%, the bottom 10%, salespeople in your industry, and salespeople at your company.  The scores are very interesting! See OMG's data here.
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Impact on Companies - Most compensation plans are designed to provide incentives to salespeople that are motivated to earn commissions.  But if most salespeople are now intrinsically motivated, then most compensation plans don't work the way in which they were intended. There are exceptions but generally speaking, most companies must get some help from sales experts who understand the new trend, understand accounting, and have the ability to help you develop a new plan.

Impact on Sales Leaders - Most sales leaders have learned to motivate using the carrot - read commission - but that's not really in play to the same degree as it once was.  Intrinsically motivated salespeople respond to coaching.  Yesterday I wrote about how great sales coaching lets you off the hook on motivation, accountability and recruiting!  Intrinsically motivated salespeople also want to master their craft, love what they do, and be part of something bigger than themselves.  Sales Leaders must learn to become great sales coaches and motivate in all new ways.  OMG measures 7 additional ways in which salespeople are motivated, including whether they love to win or hate to lose, spend to perform or perform to reward, want recognition or self-satisfaction, want to be closely managed or self-manage, want to be pressured or apply self-pressure, have something to prove to others or to themselves, and whether they prefer competition with others or to compete with themselves.

Impact on Salespeople - Surprisingly, these changes have little impact on salespeople as long as they have strong sales motivation.  It doesn't really matter whether they are intrinsically, extrinsically or even altruistically motivated, as long as the motivation is there.  However, if sales leaders aren't motivating them accordingly, and companies don't modify their comp plans accordingly, then the impact on salespeople can be quite negative and limiting.  And you wonder why there is so much turnover in sales!

Topics: Dave Kurlan, sales motivation, sales commissions, sales incentives, OMG Assessment, motivated salespeople

How to Change a Crappy Sales Compensation Plan to a Better One

Posted by Dave Kurlan on Thu, Nov 03, 2016 @ 07:11 AM

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Image Copyright 123RF Stock Photo

Nearly every company gets to the point where they must realign territories, accounts or roles.  While doing that is always challenging, perhaps the biggest issue is how salespeople will respond to the impact this change has on their total compensation.  That problem is the biggest reason why it is so important to create an effective compensation plan.

Let's take John, who is being paid a $75,000 base salary and earns commissions of 10% on the revenue generated in the territory.  If the territory generates $1 million in sales, John gets $100,000 in commissions and his total compensation is $175,000.  It's also important to note that John spends most of his time on 20 great accounts and has little time leftover for the other accounts in the territory and he no longer prospects for new business.  The company has decided to split the territory, hoping that a new salesperson will hunt for new business and John will have time to do the same.  As part of this change, John will lose 10 accounts, worth $500,000 in revenue, to the new salesperson and initially, his total comp will be reduced by $50,000!  John will not be a happy camper.  How could this have been avoided?

First, this is simply an example - one example - and not the only way to create a sales compensation plan.  However, this example will illustrate the most important component to be changed.

For the sake of argument, let's assume that the following compensation plan was given to John when he started selling at this company.  To make it simple, let's retain John's $75,000 base salary but explain that the salary pays him to manage and service his existing and future accounts. In addition to his base salary, he will earn 20% on the gross profit of new business (first year) he generates with new customers and 20% of the gross profit on the growth of his existing customers.  So if he has $1 million in existing business and grows it by 20% to $1.2 million, and the company's gross profit is 30%,  his commission on existing customers is $12,000.

Later, if you decide to take accounts away or reduce the size of the territory, it has a far less significant impact on earnings.

I am also a proponent of a sliding base/commission plan.  You can read about my concept here.

I also wrote these articles about sales compensation:

Get Sales Compensation Right to Recruit Winning Salespeople

Do We Have Sales Compensation All Wrong?

Sales Compensation and Stupid Human Tricks

But I'm a Sales Guy! The Story of Motivation and Compensation

A Different Look at Sales Compensation

Compensation - the Unchanging Role

Does Changing Compensation Increase Sales?

Sales Compensation - Exceptions to the Rule

When it Comes to Compensation Sales is Not Like Baseball

Sales Candidates, Sales Compensation and the Number of Resumes

Compensation Stupidity Again?

Top 7 Sales Force Compensation Secrets

How Wrong are Company Methods to Rank and Compensate Salespeople?

Dunkin Dunuts - Time to Make Sales Compensation and Sales Competencies Work 

Topics: Dave Kurlan, sales compensation, sales commissions, dunkin donuts

Sales Compensation and Stupid Human Tricks

Posted by Dave Kurlan on Thu, Feb 12, 2015 @ 07:02 AM

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Copyright: 123RF Stock Photo

OK, so we'll begin with something more along the lines of stupid pet tricks before we get to stupid human tricks.  There is a great TED talk about two monkeys that were unfairly compensated.  This is a must-see video!  With compensation - fair or unfair - in mind, I reviewed this year's 2015 Sales Compensation Survey Highlights by the Alexander Group and Sales Compensation Solutions.

The first finding that I noticed - we have seen this particular data point in nearly every white paper, report, survey, analysis, study and anecdotal story - is that only 50% of all reps made quota last year.  In surveys like this, a small number of large companies were involved and very often, when the companies are this large, the findings don't apply equally to your company and mine.  However, in this case, it's fair to say that this particular finding accurately represents the state of salespeople and quotas across the board.

The second finding that I noticed is that 60% of the companies will make mid-year adjustments to their quota.  In which direction do you suppose those quota adjustments will go?  The median quota was $2 Million USD.  Let's attempt to determine what the thinking was behind these quota adjustments:

Executive 1: "We will set the quota at $2M this year."
Executive 2, six months later: "Well, reps aren't hitting their quota.  Should we train our sales managers to become more effective at coaching their salespeople, train the salespeople better, evaluate the sales force to find out what's preventing them from being more successful, or all three?"
Executive 1: "Or we could simply lower their quota to show what great managers we are - they'll love us!"
Executive 2: "Yes!  That would be so much easier - we can complete that in an hour.  It could take months for those other 3 suggestions to kick-in!"

I have favorite blogs and newsletters too.  One of my favorites bloggers is Dr. William Campbell Douglass, a renegade MD who exposes the ties, lies and buys that take place between Big Pharma and our government.  I am borrowing a line from this article of his because the line describes what occurred in my imaginary, but very real discussion above.  Dr. Douglass said, "It’s like watching a lunatic argue with himself, and lose."

How else can you explain how quotas are set, missed and adjusted as often as the Boston Red Sox go from worst to first to worst and the New England Patriots go to the Super Bowl?  [Sorry - I had to get a sports analogy in there somehow.]

The Sales Compensation Survey also indicated that 64% of companies plan to increase base pay.  What should you do when your salespeople complain that their commissions aren't high enough?  That's right - they raise the base pay.  If you've been reading my blog since 2006 then you know how I feel about base pay versus commission.  It's not one size fits all and base pay is important to salespeople who are intrinsically motivated while commissions are important to salespeople who are extrinsically motivated.  If you have a plan that offers commissions, there is never, ever a reason to increase the base pay.  If commissioned salespeople want more money, all they have to do is sell more!  Even the CFO's of these companies should be able to figure that one out!  But the more likely scenario is that the same brilliant, large company Sales Leaders who were involved in the "set it, miss it, adjust it" quota goof, gave in to the demands of their large company entitlement-minded salespeople who would leave if they didn't get their raises.  I'm sorry, do they want their salespeople to fail?

The survey findings are good and important - the authors did a great job collecting and reporting on the information and I have nothing but praise for what they produced.  My issues are with the idiots who are running the companies that participated in the surveys!

In most cases, if these companies did a better job on selection - and that goes right to the Sales Leadership roles - all of their salespeople would hit and surpass quota, quota would go up each year, base pay would decrease, commissions would increase, and everybody would be thrilled.  Speaking of selection, there are a two upcoming events you might want to attend:

On February 19, I'll be presenting an online webinar hosted by TAB - The Alternative Board - on how to find, attract, assess, interview, select, hire and retain your next salesperson.  Register here.

On February 26, I will conduct a guided tour of the Magic in Objective Management Group's (OMG) Sales Candidate Assessments.  Register here.

The latest issue of Top Sales World's magazine is available here.  Be sure to check out my article on the best practices for onboarding new salespeople.

And from the "I can't believe it file", I was recently named to 3 more Top 100 lists:

Did you notice that each of these lists are related to Social Selling?  I'm flattered to be on their lists, but I don't consider myself an influencer in Social Selling as much as a participant and protagonist!  When I am influencing relative to social selling, it's usually that we need to spend more time on actual selling and less time pretending to be selling.  

Topics: Dave Kurlan, sales compensation, sales commissions, social selling, Top Sales World

Sales Force Compensation - X Marks the Spot

Posted by Dave Kurlan on Thu, Jul 15, 2010 @ 05:07 AM

CompGraphSalary or Commission?

Many small businesses can't decide and most companies don't believe they can afford the salespeople they wish to hire.  The biggest variable in this decision is the length of the sales cycle, not the amount of compensation!

Compensation is usually simpler than most companies make it.  Most companies seem to either over compensate or under compensate on salary.  Most companies tend to do the same with commissions.

There are three key points in time with compensation.  They are:

  1. at new salesperson start-up - you must subsidize the new salesperson.
  2. the end of the ramp-up - commissionable revenue has begun to arrive.
  3. at the point of establishment - revenue supports the salesperson.

In my experience, the most effective compensation plan is one that slides.  It begins with 100% salary for time period #1.  Commissions kick in during time period #2 and salary can be reduced.  Commissions replace salary during time period #3.

If you were to graph this compensation, it would look just like the picture above.  If you prefer  to maintain some or all of the salary and stay away from straight commission that would be fine.  If you feel that it is necessary to provide more commission for new versus existing business, that is fine too.  And if you want to provide salary for managing existing business and commission for generating new business, that is fine too.  In most cases, especially where margins are tight and variable, commissions should be paid on the margin rather than revenue.

The most important point is that in most cases, the compensation program should look different at the beginning than it does at the end.

Topics: Dave Kurlan, sales compensation, compensating salespeople, sales commissions

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About Dave

Best-Selling Author, Keynote Speaker and Sales Thought Leader.  Dave Kurlan's Understanding the Sales Force Blog has earned a medal for the Top Sales & Marketing Blog award for six consecutive years.  Dave's Blog earned a Bronze Medal in 2016 and this article earned a Bronze Medal for Top Sales Blog post in 2016. Read more about Dave.

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