I had an interesting discussion recently about the relative roles of Sales Performance Management and Sales Incentive Compensation and how they contribute to sales results. Here’s a summary of the debate and its conclusions.
Let’s start out by being clear about what we’re talking about.
- Sales Performance Management is the combination of processes and disciplines sales management use with individual sales people for objective setting, recruitment and separation, training and coaching.
- Sales Incentive Compensation is the financial reward for sales performance.
There was a day when sales and sales management were inherently ‘gut’ activities; no longer. Every sales force should be measured in a variety of ways to ensure progress is being made, the progress that is being made is the right progress, and the ultimate objectives are being reached. In short – sales metrics matter.
The problem is that some organisations go crazy and measure everything. They end up with a mass of statistics that frankly confuse more than they help. There’s an old saying about “Lies, damned lies and statistics” and its more true than ever.
Types of metrics
I’d suggest in this context, sales metrics fall into four groups:
- Sales people – measures of knowledge, competence, satisfaction, turnover, …
- Sales force activities – account planning, calls, coverage, proposals, …
- Customer results – customer satisfaction and retention, repeat rate, penetration, …
- Company results – revenue, units, margins, orders, market share, …
When you consider those metrics, some are ‘harder’ than others. For example sales revenue is an absolute number, no arguing about that. On the other hand sales people satisfaction is more subjective and therefore open to discussion and interpretation.
The debate with my client resulted in this matrix of metrics and how we classified them.
Sales Performance Management or Sales Incentive Compensation?
Now let’s return to the question – when is it right to use Sales Performance Management and when is it right to use Sales Incentive Compensation?
The conclusion we arrived at was this. The further to the left of the chart – ‘Sales People’, ‘Sales force activities’ – the more the metric should be considered from the perspective of Sales Performance Management. The further to the right of the chart – ‘Customer results’, ‘Company Results’ – the more the metric was suitable for Sales Incentive Compensation.
The logic behind this was very simple.
- Sales Incentive Compensation is about money. And people get very funny about money. There can’t be any room for debate with a commission calculation – you’ve either got the results and earned the money or you haven’t.
- Sales Performance Management is about performance improvement. It’s OK to have softer issues to measure when you’re talking training and development. Of course if the Sales Performance Management is potentially leading to separation, its objectives and measures need to be more numeric and unable to be interpreted.
This thinking led to this chart:
Both Sales Performance Management and Sales Incentive Compensation are critical tools to manage and motivate a sales force. Used in cohesive combination, they reinforce each other’s effectiveness. Your challenge is to be sure to choose the right improvement tool for the metric you are trying to influence.
Here’s what to do next
If you’re interested in how this could help you, or feel I may be able to help you with some of the challenges you’re facing, please get in touch for an informal discussion.
There’s no commitment, we’ll just discuss your situation to see if working together might be a good fit. Contact me now.