SPOTLIGHT INSPIRE YOUR SALES FORCE
Companies fiddle with their sales compplans continually, but the underlying logic hasn’t changed in years. Until now.Managers—and researchers—have access to so much new data that best practicesare, at long last, shifting.
SALES
How to Really Motivate Salespeople
Doug J. Chung | page 50
Much of what we believe about the bestways to compensate and motivate the sales force is based on theory and labexperiments. But in the past decade, researchers have been moving out of thelab and into the field, analyzing companies’ sales and pay data, and conductingexperiments involving actual salespeople. The findings from this new wave ofresearch support some current compensation practices but call others intoquestion.
For example, studies clearly show that capson commissions hurt sales. If managers must retain a cap, they should set it ashigh as possible to avoid reducing reps’ incentives. Although overlycomplicated compensation systems have their downsides, research has found thata system needs to include enough elements (such as quarterly performance andoverachievement bonuses) to keep high performers, low performers, and averageperformers engaged throughout the year.
Managers should be careful in setting andadjusting quotas. For instance, studies show that ratcheting (raising asalesperson’s annual quota if he or she exceeded it the previous year) dampensmotivation. The research also suggests that it’s important to pay attention tothe timing of bonuses: A reward given at the end of a period is more motivatingthan one given at the beginning.
HBR Reprint R1504C
COMPENSATION
Who’s Your Most Valuable Salesperson?
V. Kumar, Sarang Sunder, and Robert P.Leone | page 58
U.S. businesses spend $800 billionannually on sales force compensation and another $15 billion on sales training.Yet the backward looking metrics they rely on (such as revenue generated) togauge the impact of this spending provide limited insight into how asalesperson will do going forward and what types of training and incentiveswill be most effective.
As a result, many companies misallocatesales force investments. The authors worked with data
from a Fortune 500 B2B software, hardware,and services firm to develop a method for measuring reps’ future profitability.The metric, salesperson future value (SFV), is the net present value of futurecash flows from a salesperson’s existing and prospective customers minus thecosts of developing, motivating, and retaining the rep. The SFV analysisrevealed that the fi rm had been overvaluing poor performersand undervaluingstars.
Using the SFV calculations and data oneach rep’s prior training and incentives, the authors segmented reps accordingto whether they were motivated more by training or by various incentives. Thefi rm then increased training for some reps and increased incentives forothers, thus achieving an 8% increase in SFV across the sales force. The fi rmalso increased its investments in high- SFV reps and reduced investments inlow-SFV reps—a reallocation of resources that increased the fi rm’srevenue by4%.
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ENTREPRENEURSHIP
The Right Way to Use Compensation
Mark Roberge | page 66
When Mark Roberge joined HubSpot as itsfourth employee, he had no sales experience but still was charged with buildingthe sales team. His background proved to be an advantage, however: With hisengineering training, Robergebrought an analytic rigor to the task. And hequickly realized that the sales compensation plan could motivate salespeoplenot only to sell more but also to behave in ways that advanced the start-up’sevolving strategy. Each time the firm entered a new stage of growth, Robergerevised the comp plan to support its changing priorities:
Customer acquisition. Early on, HubSpotneeded to bring in lots of customers and see how well its offer was working. Soit rewarded salespeople for customers who stayed at least four months, andsoongrew to 1,000 customers.
Customer success and retention. In thesecond phase, HubSpot focused on ensuring that its product fi t the market.Realizing that many customers were jumping ship because they’d been given thewrong expectations, Roberge began tying commission rates to the rate ofcustomer retention.
Sustainable growth. After it fixedretention, HubSpot saw that its service worked best for customers who made acommitment to it. So the firm’s third plan rewarded salespeople for customerswho signed up for a full year at a time. The continual adaptation paid off : Inseven years HubSpot hit $100 million in sales.
HBR Reprint R1504E