🔦 Spotlight - aligning Sales and the rest of the org
🔦 Spotlight - aligning Sales and the rest of the org
In this Spotlight, we shine a light on the contentious topic of Sales Team incentives
Imagine your company is a rowing boat. A rowing boat advances at a gracious pace when all aboard row in sync, in the right rhythm and with the right strength. As a leader your job is to sit at the front, inspire the drive, and dictate the pace. At the end of the race, you might even get a trophy.
Now imagine, you are a leader of that boat. But some rowers are going faster than others, they don’t listen to your nudges about the pace, some might be rowing in another direction. Madness!
In traditional organizations - where Sales gets comped as a function of # of deals and ACV of the deals - this is what ends up happening with Sales teams and other teams.
In a recent Spotlight, I spoke about RevOps and their role in establishing the data-driven, strategic approach to running a sales function. I alluded to the fact Sales should be thought of as a part of a whole customer success journey. Marketing, Sales, Sales Engineering, Customer Support, Customer Success, and possibly Product should all work together to achieve three goals:
define the ICP (Ideal Customer Profile),
attract the ICP, and
make the ICP happy
You can understand why Sales is compensated the way it is traditionally. You wanted Sales to hustle. Hustle! Hustle harder! They have the base pay - which is lower than other teams’, then they have the commission - which is on a per deal basis and is a certain per centage of it, and they have a team or company bonus - which is also not insignificant. The rationale was, you get your Sales folk to get out there and push product and maybe if they exceed their quota they get to make bank.
Couple of problems with that.
And when I say a couple, I actually mean a bunch.
Ok, maybe a lot!
Maybe this worked in a previous age. But if anything my experience has taught me, just because it worked for the previous crop of professionals and companies, doesn’t mean it still does. What are the problems of compensating one part of the organization in this very different way than the rest? You are one boat. Can’t have one part of the boat row in a different direction.
🌪 Like a tornado, I see it spirals out of a single issue: making company <> client relationships transactional.
(I.) Lack of Trust:
First off, you reward individuals. Not the organization. Or even a team. This breeds mistrust. And without trust, relationships grow sour. The people who believe they can perform, end up being ultra competitive, and often backstabbing. Competitiveness becomes a dirty practice. You don’t get people to be better by pitting them against each other. You get them to drag each other down.
This is the first sin of misaligned incentives - mistrust.
(II.) Attracting the wrong customers:
Second, say a bunch of your sales people will end up selling well, and will deserve their commission. But they sell on a per deal basis, and then leave that customer to the Success team to deal with. They care about the paycheck end of the month or quarter. This leads to short-termism. This means, they won’t care (even if they say they do) about all the product updates you will do a year from now. If they can’t sell by the end of the quarter, it doesn’t matter. They will chase the wrong customers. They will try to sell to whoever is interested here and now.
This is the second sin - selling to the non-ICP, consciously.
(III.) False promises:
Which leads me to the last point. The false promises. End of the quarter is here. A rep is almost at quota but not really. There is that big whale she could land. It’s been a tough client, took months to reel in, to get to the decision maker, and to convince them the product is what they need. Then they drop a request. “We will buy. But… Can you do it but with this XYZ modification?” [insert product feature, localization, backend request]. “Yes, of course we can!” The rep may or may not have heard this may or may not be in the plans. Or something similar is. Not sure. They say “Yes!” They land the client. But in the process of landing the client, they drop a hot piece of coal onto the rest of the organization. Because Product can’t deliver on the custom request. It wasn’t in their plans in the first place! And Customer Success can’t patch up the false promises. At best, such a sale will put tremendous strain on the organization. At worst, it might break something. Or someone.
The third sin - making false promises.
So here we are. A quarter into operating like this, and people are already on their backfoot, back-stabbing each other, attracting the wrong customers, and selling pipe dreams. Sounds a bit dystopian, and it might be slightly dramatized, but not by much.
(IV.) The Last Straw
Then imagine things get hard. You miss some timelines. Demand hits a road bump. Your Sales guys leave you. Because they can no longer make a quick buck.
That’s the last sin - short-termism.
Back to the boat.
I would want my boat to glide gracefully. At pace. With gusto. This means everyone is aligned. Everyone knows the direction. Everyone has the drive. And everyone rows in sync. I’d want my sales team to be a team with the rest of the org. Not an appendage. I’d want a whole team to get involved and understand the ICP, attract them, and keep them happy. So I’d scrap the traditional model.
Tony Fadell spoke about vested commissions in his book “Build.” He argues for giving sales teams a higher than “normal” base, a sales performance bonus (preferably as stock options), and a vested commission. If the customer leaves, the rep forfeits the commission. The devil is in the details so tweaking all the parameters above could obtain very different results.
The main question is what do you want your sales people to achieve (bring in new net new logos? land and expand revenue?), and therefore what behaviour do you need to incentivize. Are you focusing on short term growth? Or are you building a long term relationship with a customer?
If you are building for the long term, it might make sense to comp sales folk more in line with the rest of the org. You ask your Marketing folk to join and believe in the brand and company, and you reward with some equity options. You ask your Ops people to do the same. The product and eng teams - same story. Why not the Sales guys?
So here are some options for incentives to create a fully synced organization (not an exhaustive list):
competitive base (for everyone)
vest the commission over 2 years (or double the expected life time of a customer) (for sales)
uncapped commission - everything over 100% of target gets put on top of your base over the next 3 years (for sales)
retention bonus (for GTM teams)
company level performance based bonuses (for non-sales teams)
Now if I am a sales rep, the end of the quarter is near, and I have to make a call about bringing in a customer that is far from ICP, I’d think twice. If I tried to get them in on false pretences, I’d think twice. If I tried to get them to upsell, but they are not even using the product, I’d think twice whether I want to waste my time doing this. Heck, I probably won’t even think about bringing in the wrong ICP (consciously) in.
Incentives matter. You shouldn’t reward only what individual behaviour you want to see more of. You have to reward a behaviour of a whole group you want to see more of. How people get to that behaviour might differ. How it manifests on a daily basis might differ. But that shouldn’t concern you.
What should concern you what you see bubbling up to surface. Let’s hope it is not a trophy you dropped to the bottom of the river.