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o How can we improve incrementally in the next few weeks and strategically in the next 12 months?
o Q&A
o Double in size over the next five years
o Deliver $1 billion of revenue next year
o Secure orders for 10,000 units of the new product
o Achieve gross margins of 55%
o Contribute gross profit of $550 million
o Increase net promoter score to 32%
o Reduce cost of sales to 5.0%
o Reduce days of sales outstanding to 38
o Improve solution selling capability
o And many others…
There are several types of sales targets (or goals or quotas) that can result from long- or short-term strategies and objectives, for example:
What do you mean by sales targets?
Studies have shown that a sales person with a goal who understands how that goal was set and believes that there is sufficient opportunity in his or her territory will perform 5-15% higher than a comparable sales person with no explicit goal.
This doesn’t appear to be a massive difference… but if you can keep 100 or 1,000 sales reps pushing through the end of the year rather than coasting once they have made enough money to sustain their lifestyles, you can move the needle on organic revenue growth significantly.
o Over-burdening top performers with higher quotas
o Sandbagging by reps (and management)
o Negotiation of quotas favors more senior reps
o Failure to communicate quotas in a timely fashion
o Failure to communicatequota-setting methodology
o Unclear ownership of quotas
o Mid-year changes create perception of gaming
o Change management from commissions to quotas
o Meaningless quotas with no impact on pay, promotion or recognition
o Inaccurate quotas driving up sales force cost
Earnings may be up at an all-time high…
Current market situation
S&P 500 Earnings$ inflation-adjusted earnings per share
…but revenue growth has been flat, and recently declining. How is this possible?
Current market situation
S&P 500 Real Sales Growth
Earnings are being made on the back of cost and operating efficiency –rather than growing revenue.
Let’s take some of the prevailing dynamics in the market today and show how they can impact quota achievement:o Last year, Acme Corporation delivered $1 billion of revenue with 200 field sales representatives delivering on
average $5 million each. Growth in the industry is slowing a bit, from 6% to 4%. Gross margins have been 48% and are being pressured by commoditization of the core product lines. Compensation Cost of Sales is about 5%.
o The CFO would like to grow by 10% and improve operating margins from 15% to 16%, and has asked the business not to replace any employees who resign from the company. Turnover in the sales force runs 15% annually. Sales management has been able to fight for replacement of key resources in some cases (strategic account coverage, key managers, etc.) but not all.
Quota achievement is down 10-15% below best practices over the past couple of years… why?
So let’s imagine we are the head of sales for Acme and we choose to attack the year’s goals within the CFO’s parameters:o In this scenario, Acme goes into the next fiscal year with 180 field sales representatives and because there are no productivity improvement
initiatives planned, market lift will only produce $5.2 million of revenue on average. To address the CFO’s 10% growth goal and the traditional 10% buffer applied to the business plan by sales management, each rep would need to carry a $6.7 million goal.
o Through long hours and diligent performance management, let’s say the sales force produces $5.8 million on average. This still drops the percent of reps achieving goal from over 60% to about 40%.
o The company achieved less than half the CFO’s revenue growth plan. But because of the operating margin improvements, the company grows operating profit by $17 million. Finance views that as a win in terms of employee productivity, and may be willing to try the same thing next year.
This logical chain of decisions creates a dynamic that puts tremendous pressure on front-line sales, and it is a hard habit to break