Courtland Clarkson, managing director, Magis Partners
You get what you pay for
1 August 2013
30 June 2014
15 August 2014
11 December 2013
7 July 2014
13 January 2014
Sales people are a diverse lot; some are deeply averse to being labelled with the term ‘sales’ and others revel in living up to the associated stereotypes. From partners in law firms to field-based sales teams for IT companies, what they have in common is a business that’s dependent upon them to generate revenue.
In the course of working with our clients to design sales incentives structures, we’ve found our own views challenged and changed, by the statistics and personal interviews we’ve compiled as a part of these projects. Two persistent themes have emerged as we’ve studied a great variety of approaches and these underpin the ideas that follow:
- sales people are not well-motivated by money;
- sales targets are not an effective way to drive growth.
Once our perspective was changed we saw that this challenge to the traditional levers of motivation held true across virtually every business we visited, irrespective of size or industry. Furthermore, changing how people were rewarded required a deeper change in how the organisations viewed themselves and their clients.
As we’ve sought to develop alternative approaches to the structure of workforce incentives, we’ve identified five principles that provide a framework for leadership teams to consider the issue:
Principle 1 – Be conscious of your motivations
Principle 2 – Be honest about the strength of your propositions
Principle 3 – Study your own processes and techniques
Principle 4 – Design incentives that reflect your values
Principle 5 – Be intentional about change – but don’t rush it
Principle 1 – Be conscious of your motivations
Most of us have mixed experiences of being sold to. In an ideal world a sales person listens to us and uses his or her knowledge and expertise to guide us in making the right decision to satisfy our needs.
Despite the essential role that they play in our personal and professional lives, sales people are notoriously mistrusted. A recent Gallup polli on public trust in professions revealed nurses to have the highest trust scores (high/very high) at 85% and car salespeople the lowest at 8%. Professional services industries performed better, but not as well as they might like: accountants 43% and lawyers 19%.
Across the industries surveyed, what emerges is a direct correlation between the perceived personal interest of the seller and the lack of trust exhibited by the buyer: the more they have to gain from selling something to us, the less we trust them to serve our needs.
Vast sums are spent to communicate a commitment to specific values to potential clients and employees; and no doubt in the majority of instances these are a genuine aspiration of their organisation. Yet the simple truth is that as businesses we do want to persuade people to buy from us and no one else.
If we want our businesses to grow we need more sales, if we want our businesses to survive we need to cover our outgoings, and we have investors to satisfy. All of these factors contribute pressure to individual transactions and define our vested interest in securing the sale.
Financial targets and incentives for the seller, which are solely based upon profit, serve to reinforce a conflict of interests and consequently undermine trust with the buyer.
We mistrust sales people for the same reason that we trust nurses; we have confidence in people when we believe that they are personally motivated to serve our best interests.
So how do we align our interests with our clients’?
Principle 2 – Be honest about the strength of your propositions
People want to buy the right service or product for their needs at the best available price.
The most common complaint that we hear from sales people is that the services or products they are given to sell aren’t as good as the leadership team think they are. At best they’re comparable to a small group of other companies who can service their clients’ needs equally well; at worst they know that if they were making the decision themselves they wouldn’t buy their own wares.
Only the most masochistic specimens of humankind enjoy waking up each morning to a day full of rejection. Eventually they stop trying hard to make deals, limp along on their basic salary, or move to other companies where the grass appears greener.
If what people have to sell is not significantly more attractive to clients and referrers than: the cost of its adoption; the inconvenience of switching providers; or the offerings of competitors; additional financial incentives or tougher targets will not improve their performance.
On the other hand, when the value of a proposition is obvious to the client, and better than the competition, sales people don’t need to be offered substantial incentives to sell. Assuming a reasonable level of competence, they will sell as much as they have time to manage. In this case higher revenue targets than they can achieve in the time available to them are more likely to demoralise them, or burn them out, than spur them on.
Instead of seeking to find, and pay for, a rare breed of superhero sales person who can sell undifferentiated offerings to just about anyone, we have seen greater long-term success where effort and money are channelled into developing products and services that are unequivocally the best in their chosen markets.
If targets and commission aren’t driving more sales, what does?
Principle 3: Study your own processes and techniques
Selling is highly context-specific and building the right organisational framework to support it is less about identifying the right external sales program and more about trial and error. It’s important to have a methodology in place, but so long as it’s half-way decent it’s not initially critical which one it is.
What is important is that, whatever methodology is in place, it is continually studied to identify improvements that are based on sound analysis. When this is done effectively the practice of sales in a business changes over time to fit its services and products and the culture of its people and clients.
Most people perform better when the expectations placed on them and their approach to achieving them, are clear and agreed. This isn’t to deny individuals the freedom to express creativity in shaping their role, but to provide them with a secure environment in which to do this. Despite the anti-establishment persona assumed by many sales people, they are in fact no different.
If a sales person is highly successful, but relatively inactive, their activities, target markets, and propositions, can be assessed to decide whether they can be pushed to achieve even more, or whether additional resource should be added to their area. If a sales person is highly active, but not achieving a reasonable return on their efforts, their propositions or markets might not be the right fit, or they may be lacking certain skills.
By identifying positive sales behaviours, and monitoring the extent to which they are adopted throughout the sales force, incentives can be designed that promote them. These offer lead indicators of success for management reporting and control; and anxiety arising from a fixation on historical revenue abates.
Excessive praise or censure is often unwarranted and a thorough understanding of why peaks and troughs in sales revenue are occurring can reduce tensions between leadership and the sales team.
If not directly by individual financial results, how do we incentivise our sales people?
Principle 4 – Design incentives that match your values
Even those leadership teams that place great store in the expression of their values in normal operations usually struggle to imbue a consistent set of behaviours throughout their workforce. Performance appraisals and pay are something of a proving ground for the leadership’s commitment to these corporate values.
The simplicity of annual revenue and profitability as measures of success is deeply attractive. They are seemingly unequivocal metrics: a podium from which judgement is passed on the quality of individuals and teams. In practice how these measures are applied are highly subjective. Often there is considerable negotiation involved in apportioning credit.
Across most businesses people are not actually rewarded for exemplifying appropriate behaviours. They may be censured if they flagrantly ignore them, but ultimately ‘cash is King’. Nearly anything is accepted and praise is apportioned for the amount of money individuals have extracted from clients.
Most corporate values propose some form of collaborative ideal. Yet most companies remain wedded to an individualistic view of work and reward. There is, however, a growing evidence base for the positive commercial impact of schemes that share profit more broadly across teams.
Martin Weitzman performed a study on the effects of profit sharing across more than 275 firms and over 6 million employees. He found that those which adopted any form of profit-sharing plan experienced an initial 4-5% increase in productivity. Notably he also observed that factors such as employee engagement in decision making could strengthen these results; and the structure of the scheme should vary according to the goals of the organisation.
‘[Collective incentive schemes] may be a better alternative than piece rates when output is not easily ascribed to an individual, that is, production is interdependent and/or aided by worker cooperation …’
Incentives come in many forms; the ability to input into the direction of the organisation, to feel heard, to grow professional skills, and to be publically recognised for their contribution, can be better attractors and motivators than additional pay.
So how do we practically go about changing our current arrangements?
Principle 5: Be intentional about change – but don’t rush it
One of the most intimidating aspects of designing values-based and client-focused sales incentives is that it usually requires hiring a different sort of person, and removing those who do not, or refuse to, get it - irrespective of their seniority.
This is particularly difficult because this cultural change redefines an implicit contract with the workforce. It’s not the fault of the sales team that they were hired to be fit-for-purpose under a different regime. Of course it is unfair that they are asked to be something else, and this should be acknowledged, but not allowed to be a deterrent to transforming incentives.
‘Take, for example, this advice from [Peter Drucker’s] 1967 book The Effective Executive: It is the duty of the executive to remove ruthlessly anyone—and especially any manager—who consistently fails to perform with high distinction. To let such a man stay on corrupts the others. It is grossly unfair to the whole organization. It is grossly unfair to his subordinates who are deprived by their superior’s inadequacy of opportunities for achievement and recognition. Above all, it is senseless cruelty to the man himself. He knows that he is inadequate whether he admits it to himself or not.’
Ideally incumbent leaders and managers can be retained and developed through mentoring and encouragement; alternatively, replacements identified within the organisation who will bring their experience and existing relationships to bear in effecting change. This helps to avoid a sense of external takeover, reducing resistance from the wider workforce, and modelling to the business the potential for advancement through adherence to a values-based approach.
In our experience an incremental programme that focuses on the following areas can smooth the transformation:
Confirming there is a senior leadership team in place who are determined to persevere with the new direction, though the benefits may take several years to realise.
Replacing department heads with people who exemplify the desired behaviours and are capable of developing context specific processes to embed these in normal operations.
Ensuring that in the course of normal staff turnover every person hired possesses the desired personal characteristics and that they are fully supported where they are in the minority.
Fostering a sense of group identity in teams and an awareness of the role that others play in supposedly individual achievements.
Publically celebrating stories where right behaviours are demonstrated
Motivation – Values – Behaviour - Incentives
A senior partner we worked with at a Big 4 accountancy firm once said to us, ‘I do what I do because I genuinely want to help my clients achieve their goals, the money they pay us shows that they respect us and value our contribution’.
When the propositions we offer to clients are clearly in their best interests and the outcomes delivered are demonstrably excellent, strong long-term relationships are established and sustained profits are a natural corollary. Your organisation will have its own culture and way of operating, and there is no universal solution that is appropriate everyone, but these five principles offer a guiding framework which you can use to develop the right incentive structure for your context.
Courtland Clarkson is the managing director of Magis Partners: www.magispartners.com. At Magis Partners, we believe that growth creates opportunity. Our motivation comes from seeing how the growth we bring to our clients creates new opportunities for their organisation and the individuals within it. Follow Courtland on Twitter @oddaccent.