Sales leaders continue to face challenges in hitting revenue targets. That's no secret. Pressure is coming from increased competition, better-informed buyers who are doing internet research—and more buyers overall. Leaders have various levers available that can improve a team’s chances of hitting targets. They include ensuring that the territories, quotas and incentive schemes all align with company plans, while also maintaining focus on metrics and analytics. Aligning these factors contributes to a shared understanding of overall pipeline health and of the accurate status of in-progress sales opportunities, resulting in forecasts that are more reliable. This approach is referred to as Sales Performance Management (SPM).
SPM is a crucial business process for helping to ensure that sales targets are linked to organizational objectives, that sales teams have balanced territories, that quotas are attainable, and that incentives and compensation align the sales teams with an organization’s revenue targets. It’s essential to remember that sales teams are typically compensated and incentivized in ways that differ from other employees within an organization. Core compensation for sales teams is inherently variable, based on a combination of commissions against sales transactions, and often overlayed with rates tiered by quota attainment or other factors. Furthermore, sales teams’ incentives are continually being adjusted to address changing market conditions. This is unlike the compensation structures for the majority of employees, who typically are reviewed only annually. Because of this difference in compensation structure, it is very important that the SPM process and supporting systems include other departments such as Finance and HR to ensure that sales organizations are integrated with the overall company and planning process to avoid potential conflicts and misalignment.
Additionally, factors including the set of accounts and leads assigned to a salesperson are predetermined, usually in an effort to ensure that no one salesperson has a monopoly on the high-potential accounts. Rather than just relying on judgement and experience, it’s important to use data to simulate territories and quotas in planning and compare options so that these are matched and aligned with organizational goals and targets. Then, ad-hoc incentives are often employed to encourage particular sales behaviors, whether to boost specific product lines or bundles, or in support of new lines or underperforming ones.
Managing these compensation factors can all be integrated under SPM. However, this is not some simple, standalone exercise that is performed at the beginning of a fiscal year, then not touched again until the following year. On the contrary, SPM supports the adaptability required by the continuous refinement of projected sales forecasts, which are in turn based on a thorough analysis of in-flight deals and the current pipeline. Plus, over time, salespeople will leave and join, or will be moved to different territories. Add to that competitive pressures and new product introductions, and it means that both reporting hierarchies and roll-ups need to be continually revised along with adjustments to incentives. Then, direct access to the details and bases of standard incentive and compensation plans for the sales team ensures that individual or ad-hoc compensation calculations don’t cause misaligned sales behaviors.
A good sales forecast, rooted in an SPM approach and based on a solid understanding of pipeline health and the real-time status of in-progress opportunities, will assist management in identifying gaps between targeted outcomes and real-world results. This information will indicate to leadership which deals need additional help, and which can be brought forward from future time periods. In addition, the knowledge can be used to understand when and where new and ad-hoc incentives should be deployed to align sales behaviors with desired outcomes.
We assert that as subscription sales models extend across industries and geographic regions over the next two years, one in 10 organizations will expand SPM to include new, additional sources of revenue not currently included in the scope of existing direct sales processes. These other channels, departments and types of revenue should be integrated into a unified approach for managing revenue performance. Selling to the existing customer base is now equally important, so with sales compensation increasingly linked directly to revenue, and with sales generated from existing customers coming at a much lower cost of acquisition, success here requires that the “sales” aspect of SPM extend to customer success and account teams responsible for these outcomes.
Finance and HR departments should be part of this overall revenue process transformation as well. All teams need to be fully integrated into both process and systems as the definition of “sales” expands to the broader concept of “revenue.” And as more departments and employees have major percentages of their compensation directly linked to sales and revenue targets, then the revenue team’s strategy can be driven alongside and linked to overall company objectives. Similarly, reports, key metric, analytics and projections need to be shared to ensure continuous improvement, and any course corrections in response to changing market conditions need to be coordinated across teams.
We recommend that sales and operations leaders consider the deployment of a fully functional SPM application or platform. That platform should support an organization’s sales performance and revenue needs today, and be ready to evolve for tomorrow, as extensions to revenue are developed, new sources of revenue come online, and more of the organization’s employees become involved in SPM.