Role Definition: The First Step of Sales Compensation Design
“I just don’t understand why we aren’t seeing higher growth! The incentive plan should be highly motivational (it’s 100% variable, after all) and I want everyone to make a ton of money under the plan, but it seems like some of the reps are content where they are.” – President, Top 20 Freight Broker
The words may be slightly different, but the theme is the same from presidents to front-line sales managers – “why aren’t we getting more growth from our salesforce?”
Compensation is Often a Secondary Problem
When faced with this problem, this leader believed that in large part the lack of growth was due to something amiss in the compensation plan. What we learned over the next six months highlights the truism told by every sales compensation consultant to every client – compensation can only go so far. There will always be factors to consider and address when seeking to improve growth. Role definition clarity is one of the most important factors (and unfortunately, most often neglected) that should be resolved prior to developing a new compensation plan.
The most crucial task for successfully driving growth in any organization is to provide role clarity to the sales reps. This goes far beyond what is typically found in an HR job description and must really address the nature of the selling role. Without accurate knowledge of both parts of the equation: how management wants the salesforce to sell and how the salesforce is actually selling, it will be impossible to design an effective compensation plan.
Perception vs Reality
A rep’s perception of the company’s sales strategy and business objectives is never 100% aligned with that of the management team. Nor is their role, as executed, exactly what management thinks it is, whether it is the amount of time spent with clients versus on administrative tasks (it is always much higher on administrative tasks than expected) or time spent cold calling versus revisiting existing accounts (it is almost always less time spent cold calling than expected). Reaching out to the salesforce through surveys, interviews or focus groups can help identify the gaps so steps can be taken to close them.
Questions to Improve Role Definition Clarity
Once the gaps have been identified, it falls on management to determine how best to change the reps’ behavior, and then communicate this vision to the reps. Surprisingly few companies actually take the time for this exercise. Listed below are some sample questions that will increase role clarity for both the sales reps and the management team. When reviewing each question, remember the objective is not to simply answer the question and move on, but to have a robust dialog (from different organizational perspectives including sales, finance, human resources and marketing) out of which will come a clear role profile.
Is the product being sold as a single product or a bundled solution?
How complex is the product being sold? What specialized skills or training are needed to sell the product?
How long is the typical sales cycle? Are there key milestones along the way that are tracked by the organization?
Who is the primary buyer – is it a single person or a group or team?
What is the customer perception of the seller? Is he/she a service provider or a trusted advisor?
What will be the customer’s primary decision factor: price or value?
What is the typical deal size? (Define this in a relative sense within the organization rather than in any absolute sense, as what is a large deal for one company may be a blip to another.)
Where should most revenue come from — new or existing customers? Where does it come from now?
Should the rep try to make the most from each deal, or instead focus on building long-term, highly profitable (and stable) customer relationships?
How much involvement should the rep have after the sale? What type of involvement (service, installation, collections, complaint handling, billing, etc.)?
How many active customers or prospects should an average rep have? How many do they actually have? What’s the reason for any difference?
How much time should the reps spend cold calling? How much time do they actually spend cold calling?
Role Definition Clarity Does Not Mean Each Person Has a Different Role
Many organizations believe that to have full role definition clarity, each sales rep must have a unique role and must be compensated uniquely as well. This results in an over-abundance of roles and compensation plans. There is a point of diminishing returns when trying to sub-divide roles into the most precise functions, and one of the keys to successful compensation plan design is understanding when you have reached that point.
Once the roles have been defined, grouping them by selling method can be helpful in understanding when compensation plans can be similar and when they must be different. The most common distinction used between selling roles is “Hunter vs. Farmer.” Combining a hunter and farmer generally gives you a farmer when organizations typically need more hunters, but there are times when it simply is not practical to have separate roles covering the same territory. In this case, a hybrid role is a practical necessity, but it is even more crucial to go through the 12 questions above and answer each from both hunter and farmer perspectives. The answers will likely be different, and the rep needs to be clear about which hat he/she is wearing and when. Likewise, the compensation plan developed will need to reflect the proper proportion and put the right emphasis on each role.
Article From WorldatWork’s Sales Compensation Quarterly.