There is a tremendous volume of literature on how to be a great individual sales person from the minds of gurus like Zig Zigler and Jeffrey Gitomer. However, wisdom on how to architect an effective group of salespeople is harder to come by. If you are in a position to reengineer sales strategy, the good news is that there are only a few critical levers you must consider.
The strategic levers include hiring, compensation, span of control, and territory assignment. The tactical levers include training and activity management. The strategic levers are the primary ones on which to concentrate. If those are set correctly, then account executives can overcome inadequate training and maintain a high level of activity.
Hire the right number of sales people with the right profile
One of the first principles of sales is to match your sales capacity to your production capacity. In most low fixed cost, high variable cost businesses like professional services, it is pretty easy to get this right. In contrast, for high fixed cost, low variable cost businesses like software or information services, enterprises often have the opportunity to double or even triple their sales force. After all, if you are not able to knock on the door to begin with, it is pretty unlikely you are going to sell anything.
Individual hiring managers should have a crystal clear understanding of what great looks like. In some environments, raw skills like clock speed, enthusiasm, and assertiveness may be required. In others, you may be willing to sacrifice some raw sales ability for industry specific knowledge. To figure out the right hiring profile, find the common threads in the background and skills of your current top performers. You will have to compare the top performers to the bottom performers to identify the critical differences that drive success. When you single out the top and bottom performers, use long term, fact-based results and not just managers’ opinions.
Align compensation with overall strategic objectives
Total sales compensation is a blend of base salary, commission, and special incentives. Each of these should be tuned to align with overall strategic objectives. Specifically, develop a solid understanding of how the compensation system will affect individual sales professionals as well as overall profitability.
The chosen split between base salary and commission is highly dependent on your environment. For example, if your organization has fixed production capacity that you expect to sell out, then the most appropriate structure is one with a high base salary and low commission. However, sales professionals are universally motivated by the compensation upside promised by a high commission rate. Unfortunately, an extreme structure – such as one with straight commission – will generally draw less experienced, more aggressive, and potentially less loyal people into your organization. The key is to strike a balance factoring in the expected behaviors and the implied skill profile that your system will elicit.
The simplest structure is to pay a flat commission rate on all sales beyond an established quota. Note that the quota can be zero. Since you get what you pay for, you can then add complexity to the compensation structure. For example, you might want to set higher rates on products that are known to drive better client retention rates and expanded purchasing of complementary offerings. Alternatively, you may wish to establish a tiered commission structure where rates increase with sales volume in order to dangle an ever more delicious carrot in front of star performers. As you make such adjustments, tread very carefully; the hallmark of a great compensation structure is simplicity. As a rule of thumb, you should be confident that the typical sales person can determine his or her payout from the next sale on the fly, without so much as resorting to a calculator. If the sales person needs to look up a table or a spreadsheet, then you need to go back to the drawing board.
If you operate in the nearly fictional world where you have fixed capacity, your product cannot be inventoried, and clients refuse to wait for delivery, then you can set a cap on total compensation to prevent dissatisfied customers. For everyone else, never set a cap on compensation even if that means your best sales person earns more than your CEO. Paying sales commissions is like paying taxes. If you pay a large amount of taxes or commissions, then that is the kind of problem you want to have.
Optimize the span of control
Span of control is a term with military origins that simply means the number of professionals that directly report to a first line manager. An excessively low span of control is both expensive and has adverse effects on sales effectiveness since it brings de-motivating micromanagement. In contrast, an overly high span of control also lowers productivity. In such an environment, managers are left with little time to provide coaching and critical deal support.
Sales managers split their time between administrative tasks, planning, and coaching. Administrative tasks include forecasting, responding to corporate requests and communications, and managing human resources issues. Planning includes such functions as account strategy and analysis as well as personal career development. Coaching includes time spent one on one with sales executives and time spent with your team on their visits in the field. Each of these three major categories consumes roughly a third of a sales manager’s time. Hence, a forty hour work week includes just thirteen hours that a manager can spend with a direct report.
In a low complexity, high volume environment such as retail sales or a call center, the span of control can equal or exceed fifteen direct reports to one manager since the need for coaching and for exception handling is minimal. However, in typical environments a span of control ranging from four-to-one to eight-to-one is considered optimal as that allows the manager one to three hours per week to support each team member.
Match territory assignment to required knowledge
When most people think of sales strategy, they think of how individual sales people are assigned to their own personal pumpkin patch. Though the word territory implies geographic segmentation, an assignment formula can be a mix of geography, industry, client role, product, or other factors.
The right territory strategy depends primarily on the knowledge base that sales people must possess to effectively close business. The more that client needs are governed by job role or industry, the more narrowly you will need to define territories. Generally, you can expect the typical sales person to be able to go deep in only one industry or one highly complex product. A more focused territory definition allows account executives to build a critical mass of knowledge allowing them to be successful with a consultative selling approach. On the other extreme, if you offer a low complexity product with broad appeal, then you can get away with pure geographic territory assignment.
Provide adequate sales training
Though formal sales training has its value, you can count on your account executives to learn on the job both through self study and from peers, provided they have a motivating compensation structure and a fertile territory. That said, it would be folly to dismiss formal training outright.
Since most sales people are extroverted experiential learners, the most effective approach to skill building is role playing exercises that come as close as possible to the real world they will encounter. These simulated live fire situations should be staged in a group setting. Raising the stakes through social pressure will make the account executive less likely to choke in an actual client engagement. Additionally, even those observing will gain a tremendous amount of value. A distant though still acceptable alternative is electronic (strictly video) learning modules that include questions to test and cement knowledge. You can safely assume that any reading material will at best find its way quickly into the recycling bin.
The key focus areas for training include order processing, basic selling skills, and product knowledge. Every sales person will require training on the mechanics of order processing. The less experienced your sales force, the more emphasis you will need to place on basic selling skills. Similarly, the more complex your product, the more time you will need to spend training account executives on features. However, be aware of the following key danger. With an extremely complex product, sales people fall into the trap of engaging prospective clients in discussions about features and functionality, thus wasting valuable time that could be spent on value-based selling, instead. After all, they spent hours mastering this knowledge themselves. To combat this, maintain a constant emphasis on consultative, value-based selling techniques and make it clear that feature selling is not acceptable.
Though order processing, selling skills and product knowledge are fertile ground for formal training, industry instruction is conspicuously absent. If industry expertise is a critical factor in winning business, then it is worth hiring professionals that come from the prospective companies to which you are selling. Thriving sales executives will enhance their vertical market knowledge on an ongoing basis through client and prospect interactions and by browsing offline and online periodicals.
Encourage activity that drives results
Like sales training, activity management is a tactical lever that you can worry less about if you have properly tuned the strategic levers of hiring, compensation, span of control, and territory assignment. When it comes to time management for sales executives, you should first explore if you are your own worst enemy. Are your account executives being dragged down by excessive internal meetings? Are you slamming them with administrative overhead that can be eliminated or redirected to a centralized team? Are you filling their inboxes with excessive and unfocused internal communications? Clearing this clutter may be all you need to do to drive a huge increase in sales effectiveness.
If you need a little extra juice, then you can set an achievable expectation for the volume of sales activity per week. This is particularly effective for less experienced sales people and in high transaction volume environments. Remember that this is a fairly aggressive tactic that also consumes cycles since sales people must enter activity into a tracking system. Micro-managing sales activity should be used sparingly since it tacitly communicates a lower level of trust and limits perceived independence. If you do go down this path for sales people tasked with both renewing existing business and growing new business, then you may need to be prescriptive about the split between these two activities. To make such expectations have an impact, sales people must know that the information is being monitored and is tied to rewards or consequences.
Here are the concepts you can immediately apply to become an adroit manager of sales effectiveness:
- Hire the right number of sales people with the right profile
- Align compensation with overall strategic objectives
- Optimize the span of control
- Match territory assignment required knowledge
- Provide adequate sales training
- Encourage activity that drives results