We often hear senior management wishing their sales force would deliver “boring” results. They dream of a sales team that’s on auto-pilot, with monotonously consistent on-plan results quarter after quarter. Some companies even offer a “consistent performance” bonus for sales reps who meet all four of their quarterly quotas. But in our view, those companies are committing…
Deadly Sin #10 – compensation tied to “consistent performance”
Why do we say that? Well, consider these three sales rep performance patterns over a full year, where the annual quota is $4.0MM – and each quarter’s quota is $1.0MM:
All three patterns produce the same total sales of $4.1MM for the year. Now, which pattern would you most hope to see? Pattern B finishes dead last – given that the sales rep would need to deliver nearly half of the year’s quota in the last quarter of the year, this pattern is a high-risk, high-stress way to live. Pattern A is the “boring” pattern, and note that if the company offers a “consistent performance” bonus, it’s the only one of the three performance patterns shown that would earn that bonus. In fact, a sales rep who’s having a “Pattern C” type of year might even let a couple of deals slide into Q3 or Q4, just to make sure he/she earns the bonus; do you really want that?
For our money, the clear winner is Pattern C. For senior management, there’s no more effective stress-reducer than sales reps who bring in business well ahead of plan. Moreover, the knowledge that some of the salesforce is in good shape enables management to focus more intensively on the sales reps who are struggling with their territories. And even if the company doesn’t need all that extra revenue for financial reporting purposes – from our lips to God’s ear! – it’s a lot easier for a good finance team to delay counting revenue on booked business, than it is to manufacture revenue when the business hasn’t been booked.
We’ll throw in one more idea: if you do have sales reps way ahead of quota early in the year, maybe they’re on a hot streak that you should take advantage of. If your company has accelerated commission plans – an approach we strongly recommend, by the way – it will be in their interest to keep pouring it on and have a blowout year. And even if your company doesn’t, consider offering them a 10% or 20% uplift on their commissions for the rest of the year.
In other words, when it comes to sales management, “boring” and “stress-free” are not the same thing.
If your company does want to reward steady performance, there’s another way to do it: Instead of offering a bonus for achieving each quarter’s quarterly quota, tie the bonus to being ahead of the year-to-date quota in each of the four quarters. In other words, in the example shown above, the sales person earns the bonus by achieving at least $1.0MM in Q1, at least $2.0MM Y-t-D in Q2, $3.0MM Y-t-D in Q3, and $4.0MM for the full year. If you structure the bonus that way, both Pattern A and Pattern C would earn the bonus.