As customer journeys grow more digital, and companies shift teams’ attention toward expanding customer relationships and recurring revenue, we need a new approach for creating clear alignment between metrics, results, and compensation.
This blog makes a business case for this shift, and offers five ways to rethink how your company likely approaches incentive compensation today.
Where Do We Go From Here?
And if we’ve learned one thing from the last 12 months, its that sales across industries has gotten extremely inefficient. COVID simply accelerated trends that have been around for a long time.
- Time spent selling is at an all-time low. We know reps spend about one-third of their time actually selling. According to Outreach data published at the end of 2020, sales teams spent much more time on non-selling activities as they work from home.
- Reps aren’t prepared for buyer conversations. We also know that a better job needs to be done when they are selling. When I hear that 4 of 5 decision makers say that reps aren’t ready for first conversations, to me, that means that marketing needs to do a better job enabling reps.
- Our sales tools aren’t solving the problem. And that’s where first understanding the architecture of the challenge becomes super important, before we jump into solving the problem. If after reading that last statistic about first conversations, you thought—oh, those teams need better sales engagement tools like SalesLoft and Outreach, consider that the average sales team already uses 20 or more pieces of teechnology.
- Quota attainment is at an all-time low. Of all the statistics, this is the most noteworthy. If quota attainment has fallen for 10 straight years, revenue leaders need to consider doing something different than we’ve ever done before. Continuing to do what we’ve always done is the definition of insanity.
All of these stats beg the question, where do we go from here?
The Case For Revenue Operations
According to Aberdeen and Sirius Decisions, companies that sync marketing, sales, and customer success increase annual revenue 2.8 to 3X. These three teams have the greatest impact when they focus together on three inflection points in the funnel:
- Better demand generation
- Intelligently structuring deals
- Effectively tapping into cross-sell and upsell
We know marketing teams can increase conversion to 10 times with effective lead response. We know that sales teams are more than 7 times more likely to close deals when they intelligently configure proposals—structuring proposals to maximize the value for company and customer.
The final tipping point, cross and upsell, underscores where companies are focusing today. Customers are already bought into at least part of our value proposition, so sales cycles tend to be much shorter and conversion rates much higher. That’s why selling into the customer base is 5 to 25 times more cost effective than getting new customers. We hear all the time that heads of revenue rely on it to reduce their overall cost of sales.
Our challenge? Teams aren’t investing their energy in unlocking these inflection points. Revenue operations is required to coordinate every team’s members, technology, planning, and reporting.
3 Ways To Level-Up WIth Revenue Operations
Capturing the potential of these three inflection points requires a next-level of sophisticated coordination—of every specialized role and technology on the revenue team. Revenue Operations does that, and Sales Performance Management is the glue that holds Rev Ops together.
We have to rethink three areas in particular:
- Streamlining operations across the full customer lifecycle: Unifying our tech stacks for cohesive, actionable insights from our data and orchestrating roles for optimal performance.
- Defining revenue accountability across marketing, sales, and customer success. Wht inputs do we need from one team to produce the outputs we need for the next to get teams where they need to go?
- Drive continuous planning and optimization across all revenue teams. We need all revenue leaders in the room whenever analysis and planning occur, and that needs to happen at least monthly.
Paying The Entire Revenue Team for Performance
The real proof in the pudding for how much we believe in doing what’s best for our customers is how and what we motivate our revenue team to focus on—in other words, not just sales.
Compensation makes Revenue Operations priorities obvious and actionable. It makes expectations clear. It tells people what to do and how to do it.
Pay is personal for marketing.
Pay is personal for sales.
Pay is personal for customers success and client services.
Pay is personal for product.
And that’s a perfect segment to the meat of this blog.
5 Ways to Rethink Incentive Compensation
Following are the five top ways that we see industry leaders using compansation as a strategic lever for revenue efficiency.
#1. Pay Every Team Responsive for Persuasion
It’s myopic when people say salespeople are coin-operated. Not only is it somewhat demeaning, it downplays how high-performers operate in general.
I’ve seen this at every employer I’ve had. Driven, successful people like to succeed. And driven successful people gravitate to places where they have impact, where they get recognition, and where they’re compensated generously.
Drawing from my own experience, I began my career as an entrepreneur. When I worked more effectively, I directly experienced the results: We signed more clients; our customer retainers grew; I could hire more quality employees; and the business made more money.
When I was at Andreessen, our sales & marketing team was bonused on our ability to hit our net new pipeline target. It made sure marketing and sales worked very closely on the front end of the customer journey.
Later, at a subsequent marketing role, I received the same pay regardless of how my team performed. My team sourced 85% of booked business in one quarter and 66% that entire year, and we still squabbled about the quality of our leads. One of the reasons that I ultimately left was because I didn't feel I wasn’t compensated appropriately and because my impact on the business wasn’t recognized sufficiently.
Intangent drinks its own champagne when it comes to compensation. Marketing salaries have a base and our variable pay reflects Marketing’s ability to source a certain percentage of the business that we book — that’s business that was closed/won. That compensation structure focuses Marketing activity and campaigns. It also means that I enjoy the most collegial relationship I’ve ever had with a sales team so far.
In a conversation with David Cichelli the other day, he said the Alexander Group is seeing the same trend more and more—where companies are embracing the idea that people want to be paid for performance, and that its more cost-efficient for companies to approach compensation that way.
#2. Inspire Persuasion, Not Shadow Accounting
As revenue leaders become more strategic with compensation—we do need to be careful to sidestep the common pitfalls.
For many salespeople, shadow accounting is a naturally accepted part of the job. It’s one reason that sales spends at least 2/3rds of its time not selling. A good rule of thumb to get a sense for how much shadow accounting your organization has, is to track your number of commission disputes.
As you roll out motivation strategies to other revenue teams, its possible for shadow accounting to impact productivity the same way—unless we solve against it. We see best-in-class organizations proactively solve for this in two ways.
- Help people understand potential payments. How much money will they get if they accomplish said goal or close said deal?
- Help people trust payments that have already happened — generally by supplying real-time, granular information about exactly how their commission payment was calculated.
#3. Use Technology Micro-Motivate, Not Micro-Manage The Field
Two big topics in management discourse right now are the importance of empathy and of radical candor. Single sources of truth for performance, results, and pay don’t just inspire persuasion instead of shadow accounting. They operationalize both of those management principles.
- Empathy. Giving demand gen managers, customer success specialists, and field reps the information they need to meet their personal income goals and trust their commission payments shows you understand and care about their personal needs and professional requirements to do their jobs.
- Radical Candor. The same goes for having insight into team-wide KPIs where we can view performance across our teams in the context of historical benchmarks, benchmarks in our industries and even average pay levels for particular areas. That kind of data helps us use radical candor to have data-based, crucial conversations.
ecialized technology was designed to bring value to users, and when we use it to enable our teams, we drive adoption and micromotivate them instead of micromanage them.
#4. Use SPIFFs and Leaderboards That Actually Work
Recently, a VP of Revenue Operations at a hihg-growth technology company shared a story. They’d analyzed dozens of special performance incentive funds (SPIFFs) for effectiveness and surveyed their teams about which SPIFF had been most motivating. Staggeringly, they discovered only three had moved the needle, quantitatively or qualitatively.
We build culture when we rollout new spiffs and give teams tools like leaderboards. We also shape trust. Both signal to high and low performers what’s expected, how they’ll be rewarded, and what they can get away with.
Following are some best practices:
- Incorporate SPIFFs for specific times of year.
- Explore activity-based incentives.
- Show reps the money they can make in real time, in your CRM.
- Put leaderboards in your CRM as well.
#5. Avoid Over-paying Low Performers and Avoid Attrition of High Performers
I spoke with a new CFO at a mid-market distribution company recently that does about $700M in business each year. He was diving into compensation strategy for the first time right after he’d been promoted into the role. Of the company’s 1200 employees, more than half have some form of variable pay.
As he started diving into compensation history, he discovered that the reason that the company was losing critical employees was because they were paying them below compeitive rates in those geographical areas. He also found that they were compensating hourly employees in illegal ways. In fact, the company’s biggest commission checks went to regional managers that were actually performing far below the margin than their peers, but just had bigger territories.
Today, that CFO is exploring how to get that information with an SPM solution before anything hits his P&L moving forward.
The truth is, most companies overpay underperformers and underpay high performers. And most organizations react to departing reps when they give their two weeks. Instead, look for ways to incorporate the following into your workforce management.
- Company and industry benchmarks will indicate if your pay levels correspond to competitive rates, and increase in tandem with performance.
- Predictive insights can signal when a high-performing rep is starting to show early signs of disengagement.
- Automated alerts make you aware of that activity and tell you why disengagement might be taking place, so you can address the issue before it impacts your team and business.
SPM Is The Glue For Revenue Operations
The big idea here is that compensation—a component of Sales Performance Management—is a great mechanism to drive organizationa change that prioritizes Revenue Operations and enables revenue efficiency.
Compensation gives the inflection points that we talked about earlier in this conversation—effective lead gen, deal structure, and harnessing upsell and cross-sell—a solid foundation.
3 Pillars For A Cohesive SPM Strategy
A comprehensive SPM strategy involves three pillars.
- Revenue leaders create Orchestration with a holistic, insight-driven approach to operational sales management, territory and quota management, sales forecasting, and capacity and sales planning. Relatively small tweaks like optimizing territory design increase sales 2 to 7 percent, without a change in sales resources or strategy. This is the pillar that many folks overlook.
- Motivation makes performance expectations clear—helping your revenue team spend more time selling and persuading because they understand what they’re supposed to do, and how.
- Incentives align orchestration and motivation, driving company objectives by directly correlating behavior and payment.
These pillars don’t always happen in this order. One company may begin their journey with an ICM solution. Another might start with intelligent forecasting. But at some point, a comprehensive SPM strategy will involve all three pillars.
To learn more about this topic, watch our recorded webinar with my esteemed colleague Erik Charles: “Rethinking the Rep Factor in 2021.”
VP of Marketing