For startups, sales compensation can be one of the hardest things to get right. Especially in the dynamic early days of your business, sales compensation can change more than any other part of the company infrastructure and is full of unintended consequences requiring constant recalibration. As it’s always a hot topic amongst finance leaders, last week The|Circle convened to discuss the complexities of sales compensation. Joining us was Paul Vinogradov, Principal at Deloitte’s Sales Transformation practice, to share his insights and experiences gained from 20 years advising clients on compensation and to answer questions from our community. Here are the takeaways from our conversation:
Sales Compensation Best Practices
Opening the conversation with some general remarks about sales compensation, Paul acknowledged the unique ability of this particular topic to inspire conflicting opinions across different roles within an organization. Indeed, it is likely that the CEO, Head of Sales, Head of Finance, Marketing team, Operations team, and HR have particular ideas or worries concerning compensation, each informed by the individuals’ personal experiences with different businesses or groups. The long shadow sales compensation can cast across a company underscores the importance of getting these different players on the same page throughout the planning process.
In Paul’s experience, sales compensation can often act as the “canary in the coalmine” for a company, revealing a previously unseen issue and prompting the team to remedy that issue. When a problem appears to arise in the sales compensation program, it is likely a symptom of a larger and deeper issue; for example, not having the correct roles in your sales organization, not having the right go-to-market model, or not setting quotas correctly for the sales team are all problems that may manifest as an issue in the sales compensation plan data. These issues with the compensation plan are indicative of issues within the philosophy and structure of the sales model, and addressing them requires swift action.
Finally, speaking with an audience of mostly CFOs and other Finance leaders, Paul was sure to emphasize how critical a CFO’s input can be during successful sales compensation planning. Noting that a strong relationship between the CFO and CRO (or Head of Sales) is paramount for success, Paul described how these two entities need to align and have healthy dialogue about the plan in order for it to attract and retain key talent.
“Oftentimes when an issue appears within the sales compensation program, it’s actually the canary in the coal mine. It’s not just a sales compensation problem, but it’s setting off a signal that’s indicative of another issue.”
Successful Sales Onboarding
The Account Executive (AE) onboarding process can be immensely complex, both for the new hire and for the supervisor in charge of tracking how they ramp. Obviously, every company wants their new hires to ramp to full productivity as quickly as possible in order to maximize efficiency. However, depending on your product or your business, it can take some time for AEs to become fully acclimated into their new position. In the ensuing discussion around this topic, multiple members described the key metrics and indicators that they watched to track a new AE’s progress.
One of the best metrics to watch in order to determine whether new AE will ramp successfully is their new logo pipeline generation. According to one of our members, if the AE builds pipeline quickly and converts on that pipeline at a rate greater than half of the expected conversion rate for new logos, that AE is tracking towards a better performance. Finally, while the timeline on which new AEs are expected to ramp will vary from company to company, a few of our members agreed that successful performers do not hit their productive peak until their second or third year with a company.
Structuring Your Sales Organization
Choosing when, why, and how to structure your sales organization into different areas of focus inevitably leads to changes or tweaks in the compensation plan. For example, building out a separate renewals team as opposed to asking customer service reps to handle renewals has immense implications for compensation. Ultimately, choosing when and why to build out that team comes down to a question of the volume of renewals versus the workload associated with them.
Finally, the call ended with a discussion of merits of the Hunter/Farmer model, and whether or not it makes sense to split sales between new and upsell business. Paul discussed how the Hunter/Farmer model works best in situations where most of the selling takes place in the first 1-2 sales; after the ‘hunter’ lands the sale, he or she can then hand off the account to the ‘farmer’ to manage, retain, and expand the relationship. For sales with a ‘land and expand’ approach, Paul recommended the ‘Rancher’ model, where the first sale is just the beginning and the ‘rancher’ salesperson will stay with the account to keep the customer involved.