How many salespeople should achieve target in my annual sales incentive plan?
This is often the most challenging question for sales compensation planners because it crosses into the area of target setting and sales strategy. The target setting process normally sits outside of the incentive plan design process in most sales organizations – but the two disciplines need to be tightly integrated.
To answer this question you can take either a “bottom-up” (sales participant view) and/or a “top-down” view (organizational view) of how target setting and incentive compensation should be integrated.
The bottom-up view dictates that the incentive plan must be “desired” by your sales force and that they have “trust” in the sales targets being set – or else this will disengage the sales force and performance will suffer.
Therefore, the traditional view would be that in a “typical” year you would expect 50 – 70% of salespeople to achieve target. If the number were to be less than 50% then you would expect salespeople to lose faith in the target setting process and disengage.
But, there are more than a few problems with this thinking.
The main problem is that this thinking operates in a sales strategy and sales force effectiveness vacuum. It also operates in a “definition” vacuum (ie what IS “target”, what is the measure or measures – how does this align to the top line company target) – but that’s another story.
To come up with a complete answer to the question – you need to start with a very detailed picture of your sales strategy and the capability of your sales force to execute that strategy. This is predominantly a “top-down” approach – which I think is the only way you can answer the question (to recap – “how many sale people should achieve target?”).
Strategies and capabilities will vary across businesses and industries. Therefore, the best way to illustrate a possible answer to the question is to provide an example:
Let’s say your business sells complex technology solutions to large corporate and government. You have 25 sales people eligible for commissions – including 10 “farmers” and 10 “hunters”, three technical specialists and two managers (excuse the simplistic language – it’s only an example).
Already, you can see that the question gets complex in terms of team targets for managers and specialists. And we have the chestnut of farmers vs hunters. Let’s just focus on the hunters for now.
Let’s say we typically churn 30% of these roles – they just don’t cut it. It also turns out that there are two people that consistently bring in more than 80% of new business per annum. And in a typical year, there will be one new salesperson that emerges as someone with promise – they actually close some sales. The other 40% struggle to make sales but they are good guys and girls and have been with the company for several years and have had some good sales here and there.
By looking at this example, you can draw a couple of conclusions with regards to the answer:
- There isn’t a simple answer – you really need to detail and segment your sales population in terms of “role” and “capability”. You also need to be thinking about what you can expect from your top, bottom and middle-ranking performers (and recent history is showing your middle ranking people are probably looking more like low performers these days!) and how they contribute to the company target.
- If your CEO or CFO demands a simple answer – the answer is likely to be closer to 20% of the sales force – certainly for people in true B2B “new biz” roles.
So don’t be pressured into thinking the majority of salespeople must achieve target.