Mark Blessington Consulting

Sales and marketing consulting with notable impact

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Test Analytics

“Innovate or perish” has become a truism; an accepted part of the business lexicon. And to innovate, we must test—or sift through the options and find those worthy of full scale implementation.

Surprisingly, there has been very little innovation over the years when it comes to test analytics. Even though testing is vital to innovation, most companies use the same old same old method of analyzing…

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Sales Compensation Testing

How often do you hear (or say): “We need to change the comp plan.” For example: If you want to increase sales, if you want more team selling, etc., then you need to change the sales comp plan. Supporting rationales often go like this: “Salespeople are money-motivated. They are not paid to do that. We need to send a clear signal. We have to make it worth their while. Money talks.” And so on.

Have…

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Forecasting Hieroglyphics

Forecasting is not exceedingly difficult, but it sure seems like it when you read a book about it! The word forecasting strikes fear into the hearts of many. A leading concern is “hieroglyphics” — how can I possibly decipher all those complex, confusing statistical formulas? Most forecasting books have lots of them. It can be like reading another language.

The truth about forecasting is that…

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Got Accurate Forecasts?

Are you tired of debates about accurate forecasts? These squabbles stem from a core issue: How should we measure forecast accuracy? Or more specifically, is there a standard against we can compare our forecast error?

Until fairly recently, there was no forecasting error standard. Forecasters could not compare forecast accuracy across products, regions, territories, and so on. Thanks to the…

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Sales Quotas 7: Healing Takes Courage

This series started with the assertion that sales quotas are a mess, then focused on a major culprit: quota over-assignment. This post asks the question: Why so dysfunctional? When a poor management practice becomes commonplace, we are called to take a serious look in the mirror.

Greed: Earning on-target pay while salespeople don't; or improving management's chances of reaching quota at salespeople's expense.

Pride: Denying the error of over-assignment, and ignoring or discrediting evidence against it.

Sloth: Relying on over-assignment rather than anticipating or preparing for negative shocks such as lost customers, rep turnover, etc.

Two functional areas share accountability with sales for the quota mess: marketing and human resources. As the more quantitative discipline, marketers should insist on and contribute more analytical rigor to the quota-setting process. The benefit: a core part of the marketing mix will likely become more effective. As the official function in charge of compensation, human resources must regard quota-setting as central to sales compensation. Rather than delegate quota-setting to sales management, or accept over-assignment because it is commonplace, human resources must step up and ensure that quota-setting practices become sound and equitable. A recommendation: charter a cross-functional design team. Draw on lower levels in the sales organization, as well as human resources and marketing. This will help the quota-setting process regain credibility. To be fair, another group must take accountability for the quota mess: management consultants. We have gingerly danced around the issue for decades, and have failed to take a definitive stand, Replacing over-assignment with improved management processes will take the opposite of greed, pride, and sloth: compassion, humility, and hard work. Most of all, it will take courage.

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Sales Quotas 6: What About Motivation?

Quota over-assignment undermines motivation. Let’s break it down. The paramount ingredient in a sales quota is prior year sales. Other elements—trends for customers and territories, market potential estimates, new initiatives by national accounts or marketing—are all secondary.

Goals only enhance motivation when they are perceived as credible.

Credibility is greatly enhanced when people participate in goal setting.

Arbitrary goals are detrimental to motivation.

Shared fate, or mutuality of interests, enhances motivation.

On all accounts, over-assignment is demotivating for salespeople. It is not statistically credible. It is arbitrary and non-participative. It creates a contentious “win-lose” proposition: sales management wins and salespeople lose.  The pervasive use of over-assignment is a bane of the sales profession. The cure: a healthy dose of courage and sound sales management practices.

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Sales Quotas 5: Shocks

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Sales Quotas 4: We're Skewed!

In the last post we saw how the law of large numbers impacts the chances of performing close to quota. Now we examine skewed distributions. Although normal distributions are far more common, some sustain a right-skew, where there is a wide range of performance above quota, and a narrow range below. As was noted in the previous post, IBM had such a distribution, and quota under-assignment helped create it. But every part of their sales management system was in alignment. They recruited top talent, had superior sales rep training, and could rely on support from other functions and the CEO.

Persistent left-skewed distributions are also rare. They signal very serious sales management problems, such as recurring levels of excessive over-assignment, high turnover, or persistent retention of low performers.

Temporary situations can cause them, such as flirting with aggressive over-assignment, a major new product launch, etc. But few CEOs keep VPs of Sales who tend to have left-skewed distributions.

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Sales Quotas 3: What's Large Got to do With It?

In the last post we were reminded that it is normal for half the sales force to fall below quota. Another math concept is equally enlightening when it comes to quotas; the law of large numbers.  Let’s say you always call heads in a coin toss. If you flip a coin a few times, you might observe more heads than tails. But if you flip it a million times, you will observe very close to half a million heads and half a million tails. The difference between the number of heads and tails will be insignificant.

The probability distribution of quota attainment for NSMs is very tight; there is a narrow low-to-high range of quota attainment, and most of the time performance is close to 100%. This is not because of over-assignment; it is because of the law of large numbers. The only type of quota adjustment that is supported by the law of large numbers is under-assignment. This would be done to reflect the higher risk associated with quota attainment at the lower levels in the sales organization.

IBM was widely known for consistently having far more than half their salespeople reach quota and join the“Hundred Percent Club.” The only way to achieve this, year after year: under-assignment of quota. Since most sales executives currently favor over-assignment, a huge opportunity exists: do the opposite! Either avoid over-assignment completely, or go one better; use under-assignment. You will have statistics on your side, and the motivation you create in your sales organization could reward you quite handsomely.

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Sales Quotas 2: What's Normal?

In the last post it was reported that 79% of companies use quota over-assignment. One supporting rationale is: “some salespeople will miss plan, so the total of all assigned quotas should be higher than the company revenue plan.” Of course some people will miss quota; that's obvious. But it should be equally obvious that some people will exceed quota, too. Most sales forces have normal performance distributions. This means that about half the sales force is above average, and half is below. And, the total amount of under-quota performance is offset out by the over-quota performers.

Most corporate goals are “stretch but achievable.” Why? Because shareholders are not fond of slackers or surprises. CEOs usually set overall sales goals that are difficult but realistic. They must in order to manage shareholder expectations. When sales management inflates an already difficult sales goal and then allocates it down to salespeople, they do not increase sales or increase their chances of hitting goal. They just lower the average percent of goal achievement in the sales force.

Statistically, the likely impact of quota-overassignment is: 

Shift average rep quota achievement below 100%, probably by the amount of quota over-assignment.

Pull average rep bonuses below target.

Deliver 100% of quota at the national level.

Award target bonuses to sales management.

The past 11 years of pay for sales management and salespeople provides strong evidence that the above assessment is true. Sales management pay has been increasing while sales rep pay has been decreasing. The popularity of quota over-assignment could be a significant contributor to this dynamic.

    Check the last several years of quota attainment in your sales force. There is a good chance that it is normally distributed. If you don't know how to do this, send me an email and I can help you out.

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Sales Quotas 1: What a Mess!

Sales quotas are commonplace. Deloitte and Varicent report over 80% of companies use them, and The Bridge Group finds 62% usage. But satisfaction is low. Deloitte and Varicent say 57% of sales executives are dissatisfied with their sales compensation plans.

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Sales Management Pay: A Sea Change

In an earlier post, alarm was expressed over the growing gap between sales and marketing manager pay. This post digs deeper.

2005 was a banner year. Corporate sales grew 12%. Marketing manager pay reflected the outstanding performance, but not sales manager pay.

Profit growth was especially strong in 2005. Profits are very sensitive to sales growth. It is surprising that a peak in sales and profits would launch a deceleration in sales management pay. The resulting disparity is likely to persist for a long time.

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Tenneco Team Pay: Too Rich and Communistic?

The Tenneco Automotive division was formed in 1977 to jointly house the newly acquired Monroe (shocks and struts) business with its 1967 Walker (exhaust pipes and mufflers) acquisition. By the mid-1980s, the head of Human Resources was increasingly concerned by the Monroe compensation plan: pay levels were considerably higher than at Walker, and Monroe used a team commission plan, rather than a traditional quota system. Formally, we were asked to assess these differences and make recommendations. Informally, we were told to "cut those pay levels at Monroe and get rid of that communistic pay plan!"

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Allstate Sales Recognition: Profit-Based Incentives

In 1985 Allstate began moving its insurance agents out of Sears stores and into neighborhood sales offices. In 1995 Allstate became a completely independent organization in a spin off from Sears. Consistent with these major shifts, Allstate wanted to ensure that its sales offices were taking appropriate steps to manage their profitability. They could do this by marketing to profitable market segments, cross-selling the full Allstate line, and thoroughly supporting underwriting and claims processes and guidelines.

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Pfizer Sales Competencies: Staying Number One

Pfizer was broadly viewed as having one of the world's top pharmaceutical sales forces for most of the 1990's. It achieved remarkable success with new drug launches such as Zoloft, Norvasc, and Zithromax. Equally impressive, it was consistently able to increase market share of drugs acquired from or co-marketed with others because of its superior sales channel.

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Baxter Sales Compensation: Early Retirement Dilemma

In 1985 Baxter acquired American Hospital Supply. It immediately initiated integration efforts, but after four years it was missing profitability targets. In particular, headcount was high. In 1990 Baxter modified its pension plan, which made early retirement more attractive to long-service employees. A shocking number of medium- and long-tenure salespeople declared their intent to take early retirement. It was anticipated that Baxter would lose significant profits if these these senior salespeople retired. I was asked to avert high turnover in the sales force, and simultaneously help Baxter reach its profitability targets.

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Nestlé Sales Strategy: Carnation Merger

In 1985 the $3 billion acquisition by Nestlé of Carnation was approved by the FTC, making it the largest non-oil merger in history. Consolidation in the retail food industry was widespread, often driven by the desire to leverage the marketing power of leading brands across previously smaller brands.