Sales Management Association Webcast Incentive ... Sales Forecasting can influence the design of...

© Copyright 2015 The Sales Management Association.

Sales Management Association Webcast

31 March 2015

Presented by

Incentive Compensation Design: Factoring Forecasting Accuracy Into Your Plans

http://www.linkedin.com/in/donyarose/en


https://twitter.com/towerswatson


ca.linkedin.com/pub/kevin-gray/8/a1a/884


https://twitter.com/anaplan


About The Sales Management Association

Slide 2© 2015 The Sales Management Association. All rights reserved.

A global, cross-industry professional association for sales

operations and sales management.

Focused in providing research, case studies, training, peer

networking, and professional development to our membership.

Fostering a community of thought-leaders, service providers,

academics, and practitioners.

Learn More: www.salesmanagement.org

http://www.salesmanagement.org/

Today’s Speakers


#SalesComp

https://twitter.com/SMAssociation










© Copyright 2015 The Sales Management Association.

Sales Management Association Webcast

31 March 2015

Presented by

Incentive Compensation Design: Factoring Forecasting Accuracy Into Your Plans









ARE YOUR SALES LEADERS DELIVERING?

Slide 5© 2015 Anaplan. Used with permission by The Sales Management Association. All rights reserved.

Are Your Sales Leaders Delivering?

OPERATIONS

SALES

HR

FINANCE

ITMARKETING

Limited Scale &

Collaboration

No Audit & Controls

Resource Intensive

XLS

XLS

XLS

XLS XLS

XLS

XLS

XLS

XLS

XLS XLS

XLS

XLS

XLS

XLS

XLS XLS

XLS

XLS

XLS

XLS

XLS XLS

XLS

XLS

XLS

XLS

XLS XLS

XLS

XLS

XLS

XLS

XLS XLS

XLS

Misaligned Plans

No Trust in Data

A BROKEN LANDSCAPE

Slide 6

SALES PLANNING TODAY

© 2015 Anaplan

REALITY & MINUTIA

© 2015 Anaplan

Improving Sales Performance is a Constant Struggle

• Manual processes and spreadsheets

• Changing priorities in corporate objectives

• Legacy systems that are not flexible

• Increasing complexity in sales processes

• Inability to adapt to change and disruption

• No modeling & planning solutions (What-If Scenarios)

• Data stored in disparate systems (CRM, ERP, HR)

• Lack of collaboration across the enterprise/stakeholders

• Visibility of accurate sales data (i.e. forecasts, historical)

• Many other challenges…

SALES

XLS

XLS

XLS

XLS XLS

XLS

SALES PLANNING & MODELING

© 2015 Anaplan

Sales Planning & Modeling to Align with Corporate Objectives

Corporate Objectives

AlignmentMisalignment

TERRITORY

PLANNING

INCENTIVE

COMPENSATION

PLANNING

QUOTA

PLANING

ACCOUNT

SEGMENTATION

PLANNING

SALES

CAPACITY

PLANNING

REVENUE

PLANNING

SALES

FORECASTING

Sales Forecasting

© 2015 Anaplan

Accurate Sales Forecasting can influence the design of your

sales territories, quota distribution and incentive compensation

• Where should we be selling?

• What accounts do we need to focus on retention?

• Where are the most profitably new customers?

• Who are my top performers and what accounts should

they focus on?

• Is there enough market opportunity in each territory to

justify the quota targets?

• How do I design the compensation plan to motivate the right

sales behaviors?

• What are the right measures in the compensation plan for

existing accounts vs new customer acquisitions?

• Should the incentive compensation be less for sales deals

with high probability of close rates and more for sales deals

with low probability of close rates?

Sales Forecasting

© 2015 Anaplan

Accurate Sales Forecasting can influence the design of your

sales territories, quota distribution and incentive compensation

Historical Sales

Transactions

Historical Sales

Performance• By Sales Rep

• By Sales Team

• By Sales Territory

• By Product

• By Customer

Third-Party Market

Data (i.e. D&B)

Account

Segmentation

Accurate Sales

Benchmarking

Customer Account

Focus

Predictive

Analytics

Regression

Rolling Average

Exponential Smoothing

Bet

ter

Pla

nn

ing

& D

esig

n

UNSTOPPABLE SALES PERFORMANCE Framework

Slide 11© 2015 Anaplan. Used with permission by The Sales Management Association. All rights reserved.

Get It Right. Keep It Right.

SALES PERFORMANCE MANAGEMENT

PROFILE

Founded in 1991, ranked

526 in the 2013 FORTUNE

1000 with $3.8 billion in

revenue

Acquired Perceptive

Software to expand

offerings into a suite of

hardware, software and

services that provide

comprehensive content,

process and output

solutions

CHALLENGES

12 acquisition companies

with different IT

environments and

processes

No standardization of

sales forecast across 4

regions and acquisition

businesses

800 front line managers

who are forecasting on

3,000 part numbers

Very manually intensive

forecasting process

Lexmark

“

”

You know the eye opener for me in

this project was how fast you can

deploy. …we literally went from

idea or concept for this project to

deployment in nine months.

Denis Giuliani, TITLE, Lexmark

SOLUTION

Anaplan for Sales

Forecasting and Territory

& Quota Management

with SalesForce and

BigMachines data

RESULTS

Forecasting data based on

SalesForce opportunity and

account data with Big

Machines pricing and

quoting data

Better alignment with sales

finance demand planning.

Reliable monthly forecasts.

Forecast calls focused on

outliers and changes,

instead of data consistency

Went from concept to

deployment in nine

months. Then continued

with Territory & QuotaSALES

PERFORMANCE MANAGEMENT

Incentive Compensation Design

Factoring Forecast Accuracy Into Your Plans

Presented by Donya Rose, Sales Effectiveness & Rewards Practice, Towers [email protected] | +1 919-933-2204

March 21, 2015

The question

Your forecast

accuracy

Your sales

compensation plans

How should

they be connected?

15towerswatson.com © Copyright Towers Watson 2015. Used with permission by The Sales Management Association

Toss out the “Darwinian” approach to sales management

16

Sales employees are money-motivated and self-managing

Strong producers will thrive and stay with the company

Weak performers will either find a way to improve or exit

Focus on the top and manage out the bottom performers (80/20 rule)

Darwinian Belief #1

Darwinian Belief #2

Successful sales managers spread their attention relatively evenly across all

members of the sales team

While sales compensation is very important to directing sales effort, it is not in the

top 5 drivers of attraction, retention or engagement for sales peopleSource: Towers Watson Global Workforce Study, 2014

towerswatson.com © Copyright Towers Watson 2015. Used with permission by The Sales Management Association

The real payoff comes from Moving the Mighty Middle

Performance Distribution

0

4

8

12

16

20

<70% 71% to

80%

81% to

90%

91% to

100%

101% to

110%

111% to

120%

121% to

130%

>130%

Performance (% of Goal)

3Where most of your associates are and

where you have the potential for the

greatest overall performance

improvement

2 The Stars1Lowest

Performers

17

© Copyright Towers Watson 2015. Used with permission by The Sales Management Associationtowerswatson.com

History is your best guide for performance ranges

The chart shows performance for

each sales person in each BU for

the year

Each circle represents one person

The BU bar shows the median value

for that BU

The shaded range goes from 5th

percentile to 90th percentile

performance for the whole group

From this, a 50% - 150%

performance range appears

reasonable


Payout curve shape anticipates

the level of quota/forecast accuracy

As confidence in quotas increases, the performance range narrows, and the curve is steeper

19

0%

50%

100%

150%

200%

250%

300%

350%

400%

0% 50% 100% 150% 200%

Payo

ut

Perc

en

t Targ

et

Incen

tive

Actual Sales % Goal

75% - 125% Performance Range

Performance Difficult to Predict

50% - 150% Performance Range


Example payout tables for three

levels of expected quota/forecast accuracy

Actual Sales %

Quota

Commission

Rate in Range

125% or more 11.0%

100% - 124.9% 20.0%

75% - 99.9% 11.0%

0% - 74.9% 3.0%

Actual Sales %

Quota

Commission

Rate in Range

150% or more 7.5%

100% - 149.9% 10.0%

50% - 99.9% 7.5%

0% - 49.9% 2.5%

Actual Sales %

Quota

Commission

Rate in Range

All Sales 5.0%

Performance Difficult

to Predict

50% - 150%

Performance Range75% - 125%

Performance Range


As the level of aggregation increases,

the performance range narrows

The appropriate

performance

range narrows

more quickly

than many

realize

• 5 BUs, each with 8

RSMs, each with 10

Sales Executives

• Results generated based

on the normal distribution

with a mean of 100% and

a standard deviation of

30%


Areas to explore

Performance dispersion

&

Performance Ranges

Dividing up your quotas

&

Effects on accuracy

Incentivizing forecast accuracy


The more finely a goal is divided, the less accurate it is

The higher the level of aggregation, the greater the accuracy

Every time a goal is sub-divided it loses accuracy

Quarters

Product lines

Illustrative Example

Channels

Accounts

23

Territories


A common flaw: Too many quotas

A common plan flaw is to assign separate quotas to several products, each with

its own payout table (with acceleration over quota), in an effort to enforce selling

across the offering

0% - 99.9% 100% or more

Product 1 400,000 25,000 6.25% 12.50%

Product 2 400,000 15,000 3.75% 7.50%

Product 3 400,000 20,000 5.00% 10.00%

Total 1,200,000 60,000

Target

IncentiveQuotaProducts

Commission Rate

Attainment Payout Attainment Payout Attainment Payout Attainment Payout Attainment Payout

Product 1 105% 27,500 315% 132,500 0% - 25% 6,250 80% 20,000

Product 2 105% 16,500 0% - 0% - 190% 42,000 80% 12,000

Product 3 105% 22,000 0% - 315% 106,000 25% 5,000 80% 16,000

Total 105% 66,000 105% 132,500 105% 106,000 80% 53,250 80% 48,000

Same Total, all

Product 3

Under Quota, Mostly 1

Product

Under Quota, Evenly

Spread

Products

All a bit over Quota

Same Total, all

Product 1


To increase quota accuracy,

consider reducing the number of quotas

For emphasis on important sales, consider modifiers with ranges vs.

separate quotas and rates for each category

Consider annual goals

Especially for “lumpy” business (vs. quarterly or monthly)

Pay monthly or quarterly against the annual goal

Primary Component

X

Strategic Product Modifier

Commission on total

sales with acceleration

over quota

Strategic Product

Sales

Modifier on Total

Earnings

• >25% of Total, and

• >$200k1.2

• 15%-24.9% of Total 1.1

• <15% of Total 0.9


Areas to explore

Performance dispersion

&

Performance Ranges

Dividing up your quotas

&

Effects on accuracy

Incentivizing forecast accuracy


Business

Outcome

Sales Person

Behavior

Sales Person

Strategy to

Earn Well

Forecast

Accuracy

Target Incentive

Your CFO says: To get more accurate forecasts, let’s make

forecast accuracy part of the comp plan.

Meaningful>= 20% of TIC

Forecast a number I’m sure to be able to hit

Manage to the forecast

Reduced Sales

Volume

Not Meaningful

< 20% of TIC

Provide an honest

forecast

Maximize other comp plan

earnings; happy if the forecast component

delivers

Wasted incentive dollars


The right relationship between your sales forecasts and your

compensation plans will motivate and focus your team

Set performance ranges that are right for your level of accuracy

- By role

- By measure

- Resist pressure to set too many quotas

- Use modifiers or rate uplifts to emphasize important results

- Keep forecast accuracy out of the compensation plan

- Reward good forecasting with organizational credibility


Towers Watson delivers Sales Effectiveness & Rewards solutions

within the broader context and understanding of human capital programs

Benefits

Risk &

Financial

Services

Talent & Rewards

Executive Compensation

Talent Management/ Organizational

Alignment

Rewards

Sales Effectiveness & Rewards

Communication & Change

Management

Data Solutions

Organization Surveys Insights

Technology

Towers Watson

14,000 employees

Offices in 34

countries worldwide

Annual revenues in

excess of $3.5 billion

(FY2014)

Business roots back

to 1878

Our clients include:

Over three-quarters

of the Fortune 500

global companies

Over 700 of the

Fortune 1000 largest

U.S. companies

83% of the

FTSE 100 Index

companies

Sales Effectiveness

& Rewards

90+ consultants

In 37 cities in 25

countries in North

America, EMEA, LA

and APAC

Completed projects

for over 300 clients in

the last four years

Proprietary Tools:

Sales

Compensation

Assessor

Sales

Compensation

Design Tool

Most comprehensive

collection of data

surveys for sales

forces worldwide


Questions and Discussion


Enter your questions in the

“Questions” box on the right

hand side of the webinar

application window.

Did we run out of time before we got to your

question? Presenters can follow-up with you via

email. Feel free to submit more questions if

you’d like an offline response.

#SalesComp













#SalesComp

You talked about sales forecasting impacting the

design of sales territories, quotas and incentive

compensation plans and in the same diagram, you

displayed sales forecasting as the end of the

process. Can you explain the differences and also

expand on how sales forecasting benefits other

functional areas of the organization?













#SalesComp

Have you ever seen forecast

accuracy work well as an incentive

measure?













#SalesComp

I don't want to go too off topic, but Donya

mentioned rationale for a sales deceleration

after meeting a certain mark. I would curious if

there was one or two reasons she could quickly

share on that justification?











Sales Management Association Webcast Incentive ... Sales Forecasting can influence the design of...

Documents

Transcript of Sales Management Association Webcast Incentive ... Sales Forecasting can influence the design of...