Even if market practice for a job suggests metrics that are exclusively growth oriented (e.g., revenue), many industries and jobs are or will have to shift the focus away from growth and toward profitability because of the economy. So with a look-forward perspective, you need to address: how does each job influence profitability? In general, influencers or drivers of profitability for sales roles fall into one of the following four categories:
- Revenue through product preference or price protection
- Cost containment
- Risk mitigation
- Strategic influences; e.g., business growth, customer service, cross sell, efficiency (e.g., utilization of CIS)
Revenue drivers apply when sellers have autonomy over pricing or product positioning. To motivate performance in this area, management can include gross margin or product-specific quotas into the plan, keeping in mind that in transactional selling environments, sellers can increase today’s margins at the expense of longer terms growth. One way to achieve a balance between short- and longer-term measures in the incentive plan is to link the product or gross margin goal attainment score with that of overall revenue (through a matrix, for example).
Cost containment is not typically a function of transactional sellers, though selling supervisors and relationship managers of large, complex accounts might have impact over the use of company resources (e.g., support personnel), T&E, freight and other deal-specific variables that count as expense. Stay clear of operating or allocated costs over which the job has no influence. Inclusion of such “fixed” costs adds complexity to the incentive scheme.
Risk mitigation includes adjustments for factors that could influence longer-term profitability. Examples include customer viability, third-party partner involvement and cost of capital. More risky industries typically use risk departments to assess the degree of risk inherent in each deal, thus freeing the sales function to focus on bringing deals to the table (a balance of power, so to speak). While sales people are often in a unique position to assess certain risk factors, their inherent motivation is to find ways to make the deal happen, not prevent it. The wiser choice is to use other mechanisms, including senior leadership review, to mitigate risk.
Strategic drivers include indirect factors that contribute to efficiency, customer loyalty, price protection and other, likely contributors to profitability. Measures such as cross sell, customer penetration (percent of wallet) and customer satisfaction fall into this category. Remember these are indirect factors. More efficient sales people aren’t necessarily more productive; happy customers aren’t necessarily loyal customers, especially those with low price elasticity.
Some industries, such as retail, use customer satisfaction as a key competitive differentiator. In such industries, motivating employees to delight customers is mission critical. It’s not upside, not bonus. These are table stakes, and in the total rewards framework, compensated through base salary. Those employees going above and beyond should receive special recognition.
Putting pay at risk, through the incentive plan, for strategic items is probably not effective unless there are meaningful dollars at stake (>20% of base salary). Otherwise, sales people dismiss these goals as not important, and focus on what will make a difference to their pay. Getting sales people to focus on drivers of efficiency, penetration and customer loyalty requires drum banging from all levels of the organization, from the CEO down to the line supervisor. Everyone, leadership especially, must walk the talk. Only when you have such continuity and unwavering organizational commitment can you expect the sales force to focus and make progress here.
Strategic drivers can be more difficult to track and report. Cross-selling is often self-reported, customer satisfaction a subjective and cost-intensive exercise. Employees have to believe the data and be able to see the connection between their actions and the company’s objectives. Otherwise, they’re not motivated (at best) or, if there’s pay at risk, upset.
As the figure below suggests, you are more likely to get results by introducing measures over which the sales people believe they have meaningful light of sight. Your best chance at increasing sales person focus on drivers of profitability is to emphasize through goals and incentive opportunity factors they currently, or perceive they can, influence.
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