Building a sales team by the numbers
I don’t know why more subscription vendors don’t do this. Subscription companies collect mountains of data from their customers and analyzing the aggregations can deliver profound insights virtually for free. Yet too often subscribers are reluctant to let their data be stripped of identifying characteristics and used for research. Too bad because there’s gold in that big data.
One subscription provider that isn’t afraid to do the analysis or to ask its customers to contribute to generating new knowledge is Xactly, the sales incentive compensation ninjas. For many years the company has captured data about sales performance and provided concrete information to its subscribers about things like attainment vs. quota and how they compare with peers. One of the early findings they released was that women sales reps were more loyal and were better at delivering on-quota performance. Yet they were paid a little less. Sad.
Xactly has been doing this kind of analysis because they have the data and because their customers understand the value of seeing how they compare to the averages. Good on them. The most recent data to come out of Xactly involves understanding the nuances of different cities as places to plant your next sales office. That might sound a little in the weeds but I guarantee you every sales VP thinks about it at some point.
The data concretely shows that cities on the west coast and in the south have a lot to offer while some of the big cities of the North and East are surprisingly…different. Conventional wisdom says that you simply must have an office in New York and/or Boston and Chicago, yet these cities have some of the lowest average staff attainment rates—New York 60%, Boston 54% and Chicago 46%. Interestingly turnover in these markets is very low relative to other places with New York at 16%, Boston, 19%; and Chicago 24%. Compare places like Austin with turnover at only 20% but attainment at 75% and Austin isn’t alone. The west coast has some of the most productive cities but Denver, at 83% attainment, takes the cake.
Xactly also tracks things like the cost per square foot for real estate, which you’ll need to plug into your cost calculation when aiming to open a new office. But what does this all mean?
How do you analyze this?
It would be easy to say that sales reps in the Northeast are terrible and the people on the west coast have it all together but maybe not. It takes more than meets the eye to analyze this.
First, everyone wants an office in the big cities especially in the Northeast where there are loads of big corporate headquarters—a condition one of my sales managers once described as target rich—so the region attracts sales managers and their people. But if everyone has the same idea this also drives up competition to the point that no one really wins, which is one interpretation of the data.
Second, variable pay is a much larger share of compensation in the East than the West. For instance just over $47k in New York but only $8.8 K in Seattle. This leads me to wonder about turnover; it’s 41% in Seattle and only16% in New York. Do people leave more readily in Seattle because there’s never much on the table? Or flip it around—are companies reluctant to fire people in the Northeast because they’re all taking serious draw against commissions? Fire people and say good-bye to the recoverable draw.
You can understand a lot from a few charts but as a manager, you need to make the right calls when hiring and expanding. A compensation plan has to be competitive for the market the office serves or you’ll risk not being able to hire good people because their perception will be that another offer more in line with local norms is better.
Real costs of real estate
The least expensive cities for real estate costs per square foot are Atlanta $23.51, Denver $25.80, and Chicago $30.13. So at the end of the day you find yourself calculating quota attainment vs. real estate costs vs. fixed and variable costs per rep. At some point you need to factor all of it into the actual cost of a rep and play that against expected revenues. But still you’re not done because as good as these numbers are, they are all largely extraneous to most businesses.
You still need to understand where your customers are and how they like or expect to be treated and for that there’s a big overlay of experience and industry clustering. So as good as this information is, we need to take it as a first cut when determining where to situate the next sales office. That’s not particularly surprising. What’s great though is with this information and more to come, we can begin to rely less of gut instinct and manage better by the numbers.
End of year goodies
End of year brings out some interesting goodies from various workshops competing with Santa for big kids’ attention. Some of it is pretty good stuff. Here’s a sampling of the best end of year product announcements from the cloud community designed to put you in the post holiday, already-back-at-work spirit.
Xactly, the sales compensation experts in the cloud, announced Xactly Inspire the other day. It’s the kind of tool that managers will love because it gives them both insight into what’s happening in the sales funnel while providing advice about how to use it. For a very long time, sales managers could have one but not necessarily the other so this announcement should please the sales manager who has everything except quota.
This cloud-based coaching and on-boarding solution enables managers to monitor and predict sales activity based on the data flying around in the SFA and compensations systems. So what, you might say, we could always do that in sales meetings, what’s the big deal? Ummm, it’s the meeting part that I think is most interesting.
We’re always talking about ways to boost sales rep productivity but it rarely dawns on us that one less meeting could do a lot to put reps in the field and maintain their managers’ sanity and blood pressure. This is essentially an analytics application designed to derive meaning from the chaos that is sales—something that could actually accelerate the sales process. So, I’d give this innovation 5 out of 5 reindeer in my magical mythical year-end scoring system.
Yes, we’re not going in alphabetical order this time. I do this to discourage entrepreneurs from naming their companies AAAAsoftware and the like, an idea that comes directly from the analog world of the yellow pages and bail bondsmen.
Anyhow, NetSuite has for many years aimed at providing a back office suite in the cloud that enables any size of enterprise to manage a global empire completely in the cloud from any terrestrial location. That’s a tall order considering business models, ecommerce strategies, currencies, languages, accounting rules, and global opportunities.
NetSuite has just put a marker down on a slew of new and improved products with names like Multi-subsidiary management, Multi-location inventory management, Multi-book accounting, global item and vendor records and more. I don’t understand some of this but it looks like the people who need to, indeed do.
NetSuite is on the threshold of being a billion dollar company and this functionality should do a lot to propel it to that club. If you’re counting, that would be 2 billion-dollar companies for Larry. Not too shabby. NetSuite has been a solid 4 out of 5 reindeer company for a long time but this introduction deserves an extra Rudolph so it’s 5 out of 5 for me here.
Several years ago Salesforce passed a tipping point, which makes it virtually impossible for it to not introduce products, so big has its footprint in platform technology become. It also doesn’t hurt that Salesforce buys compatible companies with leadership teams and technologies that bolt together into its vision.
One of its latest wrinkles is to offer an array of solutions for both the enterprise and the SMB markets, the better to maintain its pricing at the higher end, I think. This week, Salesforce introduced Opportunity Management for its SMB service and support offering, Desk.com. The idea is on solid footing. In small companies especially, employees wear multiple hats, the situation is more fluid and people take on the responsibilities that excite them, at least in my experience.
Opportunity Management for Desk.com relieves service people from the bureaucratic overhead of telling customers that they can’t take an order but that they can connect you with the sales desk which will only place you on a brief hold with—pick your least favorite music, it’s always there.
Seriously, though, the lines have been blurring for a long time between sales and service and this introduction simply follows the trend of enabling SMBs to be more responsive to commonsense customer needs. Another solid 5 out of 5 Reindeer performance for the company.
Speaking of commonsense, the Selfie-mirror provides a bit of comic relief just when you might need it. Not in line with the holidays, my first impression of the mirror was straight out of the Brothers Grimm—“mirror, mirror on the wall…” that should be enough to give you the concept though you can get more here in a short video. Is this finally the future of the telephone beyond your pocket?
The futurist in me saw huge possibilities. The mirror has an HD camera, hi-fi sound, and Internet integration built in. Some of its uses include recording and transmitting anything you record in the mirror, which would make video blogging or social media participation a snap. The mirror also has home security benefits that enable the user to monitor anything happening in front of it at any time.
What’s impressive about this, to me, is merging multiple advanced capabilities into a single product unimaginable just a few moments ago. It is a great example of niche creation and of supply creating its own demand. Selfie Mirror gets 6 out of 5 reindeer for innovation. Don’t ask me how you get 6 out of 5, it’s part of the magic of the season. Enjoy yours!
Gamifying Sales Comp
According to the Microsoft blog, the company has bought FantasySalesTeam, a sales gamification platform. The intent of the product is to boost sales productivity and the gaming part is designed after some aspects of fantasy sports leagues where you build a team from known professional athletes and try to beat other teams. The team aspect makes everyone more competitive and hopefully boosts everyone’s performance.
Ok, I get it but I wonder if this is the best approach to improving sales. We’re always trying to improve sales and it seems like we’re always failing while also bringing out new products that will do the job better. It reminds me of the long history of antacids. You can go back in history and know what decade it is just by peeking at the ads for cures to heartburn (Alka-seltzer, Brioschi, Peptobismol, Maalox, Tagamet, Nexxium and many others) but we still have heartburn.
If you see a pattern like this, it’s reasonable to ask if you’re just treating the symptoms and you haven’t identified the root cause. I’ll leave heartburn to the doctors. But for many years and even centuries, we have incentivized sales people with money (the carrot) and job loss (the stick). That wasn’t enough?
Every business is unique and its processes and people reflect this. In the past we’ve seen sales improvement prescriptions that include methodologies, technologies, coaching and many other things. Yet surveys of sales organizations by CSO Insights and others shows that improving management through things like having and enforcing a defined sales process with appropriate technology support does a better job.
So the gamification approach, in my mind, skirts the real issue, which is managing through incentives. Rather than gamifying anything, I think the real issue is individualizing the incentives and applying them across the whole organization and all product lines. It’s a big data problem and you can’t manage what you can’t measure. I see a pattern emerging.
By applying gamification, the hope is that sales people will be better at self-monitoring or peer-monitoring and self-management. But a version of this is already taking place and many businesses are trying to squelch it. According to the folks at Xactly, today almost every sales rep does what’s called shadow accounting—they keep a spreadsheet of their deals and calculate their commissions hoping to catch any errors that can easily happen in a manual or spreadsheet based corporate compensation system. The theory is that reps spend valuable selling time tracking their commissions and playing what-if scenarios rather than selling. This is time the fantasy engine would presumably take over.
My preferred approach is to get a real compensation management system like Xactly or possibly Callidus. You could try this with spreadsheets but one of the big problems with incentive compensation in general is that plans are too unwieldy to manage in spreadsheets or on paper and they are soon discarded. When this happens, reps fall into the path of least resistance. They sell what’s easiest, not necessarily what’s new and improved or what management wants to move.
But with a compensation management system all of the details involved with individuals, plans, territories, products, commission schedules and more are handled by the system. So it’s possible to custom design a plan and enforce it through the technology rather than relying on gamification.
Please don’t get me wrong. This idea may have legs—I am not terribly familiar with Microsoft’s new product so I don’t want to put it down. Gamification is a great tool in the right circumstances but I just don’t see how this solution solves the problem. As with antacids, if one doesn’t work you can always try another. But when that approach gets old, it’s time to look at root causes and perhaps cut back on the pepperoni pizza. In this case, you might ask if your management technique could use some spiffing up.
It is subtle, but in the spring conferences I see a pattern emerging around the importance of process. Admittedly my analysis in this case is a less than scientific and I have no statistics to support my idea but I my instinct says a trend toward process is beginning. Two conferences that support my contention include Xactly and Zuora both of which are happening this week in San Francisco.
Xactly focuses on the incentive compensation process and Zuora on the subscription billing and payments part of business. You could say they’re at opposite ends of the sales process too and I think that’s apt. For now let’s focus on Xactly’s CompCloud, which I attended first.
A few years ago these conferences might have been described as events to support software packages that did specific transactional things such as invoicing and collecting payments (Zuora) or organizing an incentive compensation plan to pay sales people (Xactly) and you’d have been right. A few years ago these were simple transactions. Take the incentive compensation idea as an example.
When Xactly got started, ten years ago, CEO Chris Cabrera told me, the business problem was all about trying to corral sales data at the end of a quarter to tally up sales, various incentives, bonuses and other quirky things that went into a commission check. It was a big deal too, requiring the CFO and his team at times to burn some midnight oil so that the compensation checks could be cut quickly for the reps—and accurately for the company. The old joke is that only half of the commission errors are ever caught by accounting and in this case, you can figure out which half.
So incentive compensation was a transaction that happened after the fact and whatever the incentives did was mostly in the mind of the rep because the business had only a tenuous hold on the incentives squirreled away in spreadsheets. That’s the case for the majority of businesses today too. Cabrera told his keynote audience that about 85 percent of businesses still rely on spreadsheets for compensation plans and are thus left in the transaction part of business rather than figuring out better ways to incentivize people to do great things.
But look at what the 15 percent that use technology can do. If you use a compensation system with a database behind it rather than a spreadsheet you can actually make a forward looking plan that you can revisit and play what-if scenarios with. Moreover, you can develop a more sophisticated plan that is not only designed to bring in a number but the plan can have multiple sub-numbers that can be tracked and incented differently. The parts provide greater flexibility to craft incentives that more clearly match the company’s objectives.
When you get to the point of having a plan and sub-numbers you are looking forward as well as backward though backward is all that the spreadsheets allow and that means process. A system enables you to model the future and influence how you and your people get there. And a process enables you to put some oomph behind the idea of incentivizing people to do their best work.
It must be working because on the morning of the keynote, Cabrera also briefly mentioned a news item that crossed the wires at about 5:30 AM PDT. After ten years of being a startup Xactly is filing for its IPO. At a stroke the IPO will give Cabrera the ammo he needs to grow the company even faster and bring his message to more people.
What’s most interesting about this is that Xactly’s sights are not only set on incentivizing the sales reps or helping companies bring in larger deals. The company believes that incentives can be an effective part of every employee’s compensation. Studies show that when as little as 3 percent of compensation is set as variable it can have a positive effect on performance throughout an organization. That’s not a big number but it is enough to help get people’s creativity going to empower them to do better. If that’s not a virtuous process to augment performance I don’t know what is.
Finally, the thing I really like about this company’s vision is its willingness to annonymize its data to look for macro trends in the industry. So far one of its great successes has been to discover that women really are paid less than men even though the statistics say they do better and stay longer. The Wall Street Journal ran an article on the study last year and it has caused several companies in the Bay Area to examine their own pay data to discover if they are paying people equitably.
That’s the way technology advances society. First something is not possible because we don’t have the data or the processing power to investigate a hypothesis, then we do. Then, and this is the point, everybody’s got to have the new thing. This is what sparks exponential growth and it’s why Xactly’s offering may be coming at a very good time. Of course, this is not to imply that I am offering financial advice. Just saying.
Xactly Kicks It Up a Notch
Kudos to Xactly, the SaaS based incentive compensation solutions provider. Last week they ran a very successful user meeting in San Francisco that I attended but more importantly they made some real news in the compensation space.
Conferences like this are often news generators or more precisely, they’re PR engines. Everybody with a show announces something, even if it’s just the next release of their products. News outfits dutifully carry the announcements along with a few quotes from the boss and an analyst or two and that’s that. This is not to say that the announcements are unimportant, just that they strike a certain level.
But that wasn’t the case with Xactly. Last week they announced some thought leadership that could only come from a relatively mature SaaS company. They took a big chunk of the data they managed and made it anonymous so that no one knows whose data says what. Then they looked for patterns in the way that companies pay their people; a methodology that they will replicate across multiple industries. They call it a benchmark.
First up was the SaaS industry, i.e. companies selling software as a service. Xactly has deep roots here and it was relatively easy to run some analytics against the data but what they discovered was amazing. According to the company, 79 percent of SaaS sales reps miss quota and only 14 percent make or exceed it. Now let’s peel this onion.
First, wow Batman, that’s gotta be a lot of unhappy reps trying to live on base salary and I’d bet there’s significant churn in the ranks. Why stay if you can’t figure out a way to make a living? But second, as CEO Chris Cabrera said, these companies are looking for growth rather than profit. He’s right, of course, if you’re burning venture capital, revenue is less important than market share and the name of the game is to put as many reps into the territory as possible to up the chances of gaining penetration.
This might be something we’ve intuitively known for a very long time but to see it in concrete numbers raises the perception significantly. More significant, to me, is the fact that Xactly has similar benchmarks waiting to be released on seven other industries. Very soon, for the first time in history, we’ll be able to see patterns in sales compensation in eight markets. This will inevitably help managers and HR types to truly understand compensation and it will help reps to better know whether their jobs are keepers or if a little churn is in order.
But it can also serve to inform the sales reps that they’re being, shall we say, used? Used. If there is a 79 percent chance you won’t make quota, would you accept a standard pay package that essentially treats you like a human advertising medium while paying you like something else.
Could this possibly be good news for marketing automation vendors? It could if sales people started avoiding SaaS jobs like a bad habit. In lieu of the hardcore sales approach, lack of quota attainment might make sales people scarce to the point that companies will need to get more savvy about how they market and that could be good for marketing automation. See? With so many reps not making quota I could see the VC’s calling time out on their portfolio companies’ business plans too.
All this is well and good but the significance of this announcement doesn’t stop here. There are lots of companies with similar data that can be scrubbed to reveal distinct patterns in a variety of industries. For instance what would Zoura’s subscription billing data reveal if subjected to the same treatment? Or Salesforce? What might these companies learn from reviewing their industries’ data? What might VC’s discover about their investments or entrepreneurs learn about white space in markets? The possibilities might not be limitless but they are significant. It seems that best practices ought to be forthcoming soon.
This is a new world in which almost anything can become known quickly. It seems to me that Xactly has made a big down payment on the second machine age after a book by that title. They’ve found a way to leverage already collected data using simple computers and some smart people. They will be able to share what they learn with their customers to enable them to be better at a critical piece of their business — compensating performance.
This isn’t going to cure cancer or global warming but I believe we’ll look back on this in ten years as the beginning of a new era in data driven management. Cabrera has been talking about this approach for a long time and I know several other CEOs who have similar ideas and I think this could be a game changer. As I intimated at the beginning, this was not your average conference announcement.