Case Study: Company Situation
A large high-tech firm was experiencing a significant amount of annual turnover by their sales reps, says DiMisa, who is senior vice president and the head of the Sales Force Effectiveness Practice at Sibson Consulting. Initial analysis showed that the cost associated with the company’s turnover was more than $50 million a year in direct and indirect costs.
The company hired Sibson to review their compensation plans in order to determine how to adjust compensation to retain and attract the right sales talent. But the analysis of 2 years’ worth of sales rep data showed that compensation wasn’t the problem.
The first chart shows the turnover by tenure bucket. The company realized that most of their turnover occurred in the first year.
Turnover by Tenure Bucket
Further study showed that the turnover was concentrated among those in the poorer performing quartiles.
And the second chart shows performance over time for the 25th, median, and 75th percentiles of performers.
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Performance over Time
The top line represents the 75th percentile of performance, the middle line, median performance, and the bottom line, the 25th percentile of performance. The vertical axis is the percent of quota achieved.
What became clear was that the top performers showed themselves early—by the third month on the job, they reached quota and continued to meet and exceed quota. The median performers were likely to meet quota by the sixth month and were likely to continue to achieve quota.
The interesting thing they found was that those who did not achieve about 60 percent of quota by the third month were likely to never reach quota.
Why are you keeping your investments on those in the 25th percentile who will never get to quota? DiMisi asks. The strategy for the lower-performing group is to develop a performance plan at that early stage and exit them soon after, DiMisi says.
The overall conclusion of the study was that the recruiting and onboarding processes needed more attention, not the incentive system. To develop recruiting strategies, focus on the skills and competencies possessed by the top group, he says.
How about your sales compensation plan? Is it driving the performance you expect and need? Or is it on life support? When sales sag but you just can’t seem to put your finger on what’s wrong, it may be time to take a focused look at your current sales compensation structure and evaluate whether it’s really aligned with your organization’s mission and sales force expectations.
Don’t know where to begin? Fortunately, there’s timely help in the form of BLR’s new webinar— Sales Compensation Plan Makeover: How to Fix What’s Broken & Rejuvenate Your Sales Force. In just 90 minutes, on May 29, you’ll learn everything you need to know about reigniting the fire under your sales force.
Register today for this interactive webinar.
Sales Comp ready for a makeover? Join us May 29 for an interactive webinar, Sales Compensation Plan Makeover: How to Fix What’s Broken & Rejuvenate Your Sales Force. Earn 1.5 hours in HRCI Recertification Credit. Register Now
By participating in this interactive webinar, you’ll learn:
- What to consider before reworking your pay formula, including the type of selling your workforce does, your business sales cycle, and more
- How to evaluate what’s most important to your organization, such as margins, profits, and market share, and develop a sales compensation plan that aligns with your core mission
- Tips for determining whether your established short- and long-term sales goals are working effectively in relation to your overall business needs
- The types of incentives you may want to consider based on your organization’s sales cycle and overall sales goals
- How to tell if your current sales compensation plan is due for a makeover based on industry pay rates
- How use compensation surveys
- Signs that you may want to switch from a fixed or variable sales pay model—and vice versa
- And much more!