It’s a new sales year and last year is behind us. The slate is clean and everyone begins at the same starting point. In every sales organization optimism soars at this time of year. Recent research findings, however, suggest there are reasons for grave concern.
CSO Insights, a division of MHI Global, paints an alarming picture–one that tells a compelling story. Their research reveals that on average only 53% of sales representatives made their quota in 2015 and that number has been declining each of the previous three years.1 Yet CEOs in most organizations expect double-digit growth. The harsh reality is that there is a widening disparity between executive expectations and sales performance.
Not making plan adversely impacts an organization in at least three ways: lost profit, increased turn over and a deterioration in the climate of performance.
- Risk of Profit Loss: If 47% of a sales team fails to achieve plan in any given year, the company is at great risk of losing a sizeable percentage of projected revenue and profit. Consider this simple example to calculate the lost profit.
- If the average representative’s sales quota is $1.5 million and the company employs 100 sales representatives, it means the team sales quota is $150M. Let’s assume that each underperforming sales representative came in at 85% of plan.
- In aggregate this means that the underachievers (47% of the team) missed their portion of the team quota by $22.5M.
- This puts a significant burden on the rest of the sales team. The remaining 53% of the team must achieve 128.3% of plan in order to make up for the $22.5M shortfall.
- A $22.5M revenue shortfall–at 50% gross margin–means the company is at risk of losing $11.25M in potential profit. How much money could have been spent on sales coaching, product training, sales skill development and marketing materials?
- Risk of Talent Loss: Assuming that sales representatives are paid commission on sales, when almost half of the sales team fails to achieve their individual sales plan their compensation suffers. Of the 47% who underperformed, many are at risk of turnover. Simply put, they didn’t make as much money as desired or achieve the recognition received by others. Some may feel that their quota was unachievable or that they didn’t receive the support or resources provided to others. These are the representatives that attend the awards banquet each year and watch as their peers accept achievement awards. Few sales professionals will stay in their current position if salary and recognition are on the decline. The ones that do are probably not the individuals you want.
- Erosion of the Climate of Performance: Every sales leader aspires to build a climate of sales achievement and performance. They want all sales representatives to share an expectation of achievement. When a sales team perceives that it’s acceptable to underperform, then you can expect serious erosion in climate. One account after another, the losses begin to pile up and no one can pin point what has caused the change.
The Focus & the Fix
The challenge is clear: sales leadership needs to address underperformance. A team’s “A” players are already shouldering a heavy burden; focus directly on the underperformers that is coachable and capable. The following questions will help determine reasons for the shortfall and potential solutions.
- Are the sales quotas being set properly? Often a sales quota is what the company wants accomplished but it may not bear any logical connection to market realities. In other words, is it the man or the land?
- How far below plan is the entire sales force? It’s a best practice to group everyone in increments of 10% from the lowest percentage to plan to the highest and then place that data into a bell shaped curve for ease of viewing and analysis.
- Is underperformance regional? Determine in which region where underperformers reside along with the name of their First Line Sales Manager (FLSM). This will provide a graphic illustration of underperformance by region. It will also show you if the problem is systemic or is limited to a few regions.
- Is there a pattern to the shortfall? Are all of the sales professionals in one region or multiple regions? Is this a one off situation or were they below plan year after year? Is the shortfall in all product areas or is it isolated to one particular product?
- In which sales skills are each of the sales professionals deficient? Is it targeting, prospecting, qualifying, executing the strategy, negotiating, closing, delivery or account management?
- Are you loosing deals to a competitor or to the “status quo?” Why are your customers choosing not to change?
- Does the sales force have the necessary business acumen and value messaging to connect with buyers? Do the sales representatives have a sales playbook to match value messages to “buyer personas?”
- Are all underperforming representatives coachable? Do they need to be placed on a Performance Improvement Plan (PIP)?
- Are underperforming representatives receiving adequate coaching? Are one of more of the front-line sales managers part of the problem? Are they hiring the wrong people? Are they spending enough time coaching their team members?
As you analyze the causes for the revenue shortfall, one thing is certain: doing nothing is not going to change the outcome for 2016. Perhaps this is why the turnover of sales vice presidents is so high each year. Hoping for change and hoping that your high performers continue to carry the load is not a sound strategy!
When sales goals are set aggressively there are going to be years when some portion of the sales force doesn’t achieve plan. When it’s a perpetual problem, the team needs to take a close look at the root causes; problem areas need to be addressed. Sales operations can help define the problem and recommend solutions. When we see a high percentage of sales professionals fall short of their sales quota year after year, it is often caused by one of the following root causes:
- The wrong people are being hired i.e. there is no hiring profile
- Sales quotas are being set inappropriately
- On-boarding of new hires is ineffective
- There is no sales methodology being used
- Customer interactions are assumed to be excellent but are far less effective than desired
- Front line sales managers are not providing adequate or effective coaching
- Sales managers are not using sales analytics to define size and scope of the problem
- There is a poor understanding of the customer’s buying process
- A sales playbook is not available or not being used
As always we welcome your thoughts and input. Let’s start a discussion and elevate the sales profession with a thoughtful, civil and informative discourse.
- Data from CSO insights 2015 Sales Performance Optimization Study
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