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Kevin W. Grossman: In this CPSA Recruitment and Talent podcast, we’ll talk about “the right comp formulas” and how to conduct a sales compensation audit. There are many sales experts who agree that long time one size all fits compensation practices probably hurt businesses overall. Yet companies struggle to find the right compensation structure formulas that support their sales success. Constantly changing what those practices are often result in poor performance and failure to achieve required sales targets. Auditing your sales compensation plans helps to identify design elements that are working and should be doubled down on and where changes must be made to continuously improve program effectiveness.
Conducting a sales compensation audit also helps determine any deficiencies and how your roles are structured, process problems, and data issues that must be resolved to optimize sales performance. The audit report provides a blueprint for short and longer term improvement and understanding how your overall sales compensation program aligns with your business goals and how sales, marketing, and service strategies will help achieve those goals as critical to today's highly competitive local and global economies. Audits also help you identify possible risks if the existing plans are left in place without change or the opportunity to add or modify a performance with tweaks to your existing designs.
Our guest today is David Johnston. David is the founder and CEO of Sales Resource Group Inc. A leading consulting company with extensive experience in the design and development of sales compensation programs for organizations across North America and around the world. He has a broad international consulting background and offers experience and a participative approach when consulting with clients and over 25 years of experience working with organizations from diverse fields such as broadcast media, pharmaceuticals, telecommunications information technology, retail manufacturing, membership organizations, and financial services. David teaches total rewards, communications, and sales compensation for World at Work and is a member of the Canadian Professional Sales Association.
Kevin W. Grossman: David, thank you so much for being on the CPSA Recruitment and Talent Podcast. Before we dive into the rest of the show, why don’t you tell us a little bit more about who you are and what you do today.
David Johnston: Thanks for having me on the show, Kevin. My name is Dave Johnston. I'm a consultant that specializes in the design and development of sales compensation programs for medium- to large-size organizations. We've worked pretty much across every type of sales channel and sales plan that you can think of. Today, I work primarily as an independent, and I'm enjoying everything that I do. Out there today, the sales compensation field is wide open, and there's a lot of opportunity for young people who want to go into sales, although it is starting to change. I'm finding the sales environment as well as sales compensation is changing.
Kevin W. Grossman: Dave, many companies today struggle to find the right compensation structure formulas that support their sales success. It seems quite the daunting task, especially for established growing companies and larger organizations, so what should be the first few steps?
David Johnston: Our experience has shown that research-based sales compensation design provides much better outcomes and supports sales success to a much greater degree. When I say research-based, it means that as opposed to just sitting down and trying to create the new plan, you need to go back through what you’ve been doing over the last year or two years and look at the performance of your plans, where it's worked well, what hasn’t worked well. You need to look at what the payouts have been and the performance distribution of your salespeople in terms of how they’ve achieved against their targets over the last couple of years. Going through the right research and having the information that you need in order to assess where you want to go is critical as a first step in terms of the design process.
Kevin W. Grossman: What specific performance measure or measures beyond what you’ve already just outlined should also be analyzed during the same compensation audit?
David Johnston: First and foremost, you need to make sure that the sales compensation plan, when you're auditing it, is in alignment with the business goals and sales strategy. That’s typically where we start. You then need to look at whether or not the types of measures that you're looking at are going to contribute to the tactical execution, so does it reinforce the right kinds of behavior and activities?
Then from there, you start to look at the performance measures to determine whether or not those key performance measures are aligned with what the outcomes are that you're looking for, whether it's a focus on certain products, whether it's certain kinds of accounts. If it's just revenue, is it revenue plus margin? There's a number of elements that when you look at the performance measures from an audit standpoint, it's absolutely critical that you assess those outcomes.
Kevin W. Grossman: Dave, you told me before we actually launched this podcast that the field of sales compensation auditing is quite wide open. Why do you think that is?
David Johnston: A lot of organizations are trying to find what the answer is, what the right kind of plan is for today, as customers have had a much greater access to information and, in fact, are much more educated in terms of what they want than they were in the past. In the past, they would come to a sales organization and say, "What do you have to sell me?" Today, they're coming and saying, "Here's my problem. Solve my problem." Salespeople are becoming a lot more consultants to their customers, and they need strong business acumen as well as consulting skills to be able to assess the requirements for the customer and come up with a good solution.
Kevin W. Grossman: Indeed they do. In fact, you referenced this already, but one critical aspect of sales compensation is the ability to initiate and reinforce the desired behaviors of your salespeople that you want and you want to sustain over time, too. What kinds of behavioral assessments do you recommend and what do they consist of?
David Johnston: When you look at sales behavior, depending on the nature of the role, if it's account management and you're looking for people to take an existing relationship, deepen it, introduce new products into that company, there's certain kinds of behaviors that support that in terms of analytics, understanding the needs of the customer. If a large part of the role that you're designing the comp plan for is around new business development, you're looking for hunters that are going out and finding new opportunities. Very different skill set. A large part of that is analyzing the market, understanding who has a need for your product and services, and then having the right kinds of behavior to go out and find those opportunities and work them through to close.
Kevin W. Grossman: Along those same lines, when it comes to renewing business, which is just as critical for a business as it is landing new business ... Correct? In fact, we could go through a whole discussion around the cost of acquiring a new customer versus retaining one. At least in the enterprise software space, there's a lot of account management teams that are responsible for those renewals in conjunction with sales. Just based on the assessment that you just outlined for us for the hunters, for example, what do you recommend when you're just looking at the other components of an organization that's responsible for renewals?
David Johnston: Everybody today is looking for growth, and it's one thing to have the hunters getting new business, but if it's going out the back door as quickly as it's coming in, you're not getting the growth. Account management is huge in terms of account retention and revenue attention, and in order to get growth, you need both. The folks that are in your account management side really need to be looking at how to deepen the relationships as opposed to somebody trying to sell a product to the customer, becoming more of a resource to their customer that they can count on for not just the products and services, but to come forward and understand their business so that they can provide solutions that will add value to the customer.
Kevin W. Grossman: Now, Dave, once an audit is completed and ready to communicate to the sales force, how do you recommend that sales leaders roll them out to ensure complete comprehension and participation?
David Johnston: Well, I'll tell you. A large opportunity that exists right now within the sales compensation design field centers around communication. It's probably the area that most organizations do poorly. They also don’t take advantage of the opportunity to make sure that the employees that are working under these plans are thoroughly knowledgeable and really understand the intent. Very often, we communicate the mechanics of the plan, but we don’t look at what the objectives are and the kinds of behavior that we're looking for out of these salespeople.
The other piece to that is if you can't get the sales leader to take ownership for this, then it's probably not a good idea to make a change to the comp plan, because the people that salespeople look up to and the people that are the leaders within that function, they need to be the ones that champion this kind of change. They need to not only participate in it. They need to understand it, and it needs to be cascaded down through the management ranks to ensure that when salespeople come forward and have questions that everybody's on the same page in terms of what the plan's intended to do and how it works.
Kevin W. Grossman: Thank you so much again for being on the CPSA Podcast. Where can we find more information about Sales Resources Group and what you're doing today?
David Johnston: Kevin, I really appreciate the opportunity to talk with you today. If people want to reach me, they can reach me at djohnston@salesresourcegroup, or they can reach out to me by phone at 416-805-0208.
Kevin W. Grossman: Excellent. I look forward to meeting you in person someday.
David Johnston: Sounds good, Kevin. Take care.
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