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Unraveling Sales Goal-Setting

September 03, 2013  |   Compensation,Performance Management,Uncategorized   |     |   Comments Off on Unraveling Sales Goal-Setting

Sales goal-setting seems to be the most challenging component of sales compensation design for small and large companies alike. The best designed sales compensation plan can fail without effective goal setting. If goals are set too high and are not achievable, a company will see an increase in sales turnover and poor sales results. If goals are set too low, a company will be overpaying for sales performance and see a decrease in sales effort. It is critical to strike a balance and set stretch, yet attainable goals. Highlighted below are the pros and cons of several different goal-setting methodologies and information on goal-setting best practices.

Unraveling Sales Goal Setting

Goal-setting Methodologies
You can use several different goal-setting methodologies to set goals for your sales force. Highlighted below are the pros and cons of the various types of goal-setting processes a company can choose to use. We start with the least complex methodology and end with the most complex methodology. In some instances, where little or no data and resources are available, Fixed Allocation may be the only feasible methodology; however, we recommend Bottom-Up, Top Down and Account Planning if the market and account information is attainable. Both utilize the most comprehensive information available and incorporate sales team input to arrive at challenging, yet attainable goals.

Methodology #1:
Fixed Allocation: Flat targets set across sales team

Pros:
> Least complex methodology
> Simple process

Cons:
> Peanut butter approach
> Doesn’t account for territory potential
> Potentially creates a “free-ride” for reps with highest potential territories and can be demotivating for lower potential territories

Methodology #2:
Historical Allocation: Pro-rata allocation based on last year’s performance

Pros:
> Simple process
> Based on historical performance

Cons:
> Doesn’t account for territory potential
> Assumes past performance is key indicator of future performance
> Creates a “performance penalty”; best carry the burden

Methodology #3:
Bottom-Up, Top Down: Market-level potential information (market opportunity, penetration, competition, rep experience) used to create estimates of territory potential. Top-Down corporate objectives reconciled with market-level.

Pros:
> Incorporates local information for more equitable goals
> Including the sales team input helps to empower the sales team

Cons:
> Complex and time consuming
> Requires significant research and analysis

Methodology #4:
Account Planning: Individual account evaluation

Pros:
> Driven by the rep and sales manager
> Effective for small number of large accounts

Cons:
> Very complex and time consuming
> Not feasible for large number of accounts

Best Practice
It is best practice to set goals that are stretch yet attainable. Ideally, you will see a traditional bell curve in which most of the sales team hovers around target. An effective goal-setting process results in 60% – 75% of the sales force achieving their goals, 10% achieving below threshold, and 5%-10% achieving excellence, or well above target. If this type of performance allocation is not achieved, the goals can be considered too difficult or too easy.

Conclusion
Effective goal-setting is a lot of work. That is why many companies prefer to use the Fixed Allocation or Historical Allocation methodologies. Utilizing these less complex approaches year after year may save time and resources, but can lead to a poor sales culture and stunt sales growth. It is worth the time and investment to develop and manage the goal-setting methodology effectively. When done so, top performers will excel, middle performers will be stretched to do more, and low performers will know what they must do to keep their jobs. This results in improved business results.

Written by: Jill Rea, BCR Consultant

BCR is a local, minority-owned firm with more than 25 years experience in serving non-profit, public, and privately held entities in the key areas of Benefits and Compensation Consulting, Performance Management, Human Resource Organization Development, and Human Resource Information Systems and Processes.

Call (847) 236-1208 or email us today for a no-cost, no-obligation consultation to discuss how we can partner to achieve rewarding results.

 

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