Ahead of the Curve

By Henry Canaday

Welcome to Sales 2.0, the new kid on the sales block — destined to align sales and marketing better while speeding up the sales process. This far-ranging and quickly expanding group of technologies will affect all aspects of sales, especially the functions related to compensation and leads.What is likely to shift immediately? The structure and deployment of the sales force andcompensation, including both cash and noncash incentives. Although some experts see uncertainties related to these changes, they report that some firms are already seeing shifts in incentive practices, lead gathering, qualification of leads, and much more.According to Jerry Colletti, managing partner of Colletti-Fiss, one impact of Sales 2.0 should be more qualified leads, thus increasing a rep’s ability to make quota faster and earn more money under existing comp plans. Colletti says, “It might also cut 10, 30, or even 50 percent of the time reps spend qualifying leads.” Now that’s useful technology.CHANGING THE STRUCTUREThat should mean higher sales and larger commissions. But managers must make sure their companies are making money if reps are being paid more. “Theoretically, you can eventually increase quota if it is easier to make old quotas,” Colletti says. “And remember, you will have to pay for Sales 2.0 tools; this stuff is not free.” But he cautions that increases in quota should not be immediate, or reps may grumble about the quality of leads. “It might take a couple of years to see the benefits, so don’t increase quota at first, or [reps] will turn the cannon around and complain about lousy leads.”Automation of lead qualification may also affect compensation and incentives. “You don’t have to give personal incentives to software,” Colletti jokes. On the other hand, Sales 2.0 promises to measure the effects of individual marketing campaigns so marketers can be more responsible for performance.Sales 2.0 metrics should also show where the best leads come from, whether from the Web, trade shows, or other sources. That will enable managers to assess the quantity and quality of leads they distribute to each rep. And compensation plans could reflect these assessments. Or management may simply adjust territory or segment assignments, as they will better understand how potentially rich each market is. That will also affect compensation, especially upside potential for bonuses. DOING THE BESTBarry Trailer, a partner with CSO Insights, notes that many east coast sales departments still tend to think in terms of incremental expansion of high-tech sales tools. They do not necessarily call this expansion Sales 2.0. “We call it CRM 2.0, but you can think of it as best practices — doing what the best reps always did but doing it better, faster, and cheaper,” says Trailer. Whatever they are called, the new tools enable reps to start the sales cycle earlier and accelerate nurturing very affordably.The link between new methods and sales compensation is straightforward. So incentives must reflect the changes in activity that management wants to encourage.Sales 2.0 means that reps will use new tools to conduct new activities. Noncash incentives might be used to reward reps for learning new technologies quickly and completely. Cash incentives may then be based partly on new metrics, for example, quickly pouncing on ready-to-sell opportunities as they are passed from automatic lead-distribution tools. All this may be easier than expected. A lot of young sales reps are tech savvy and eager to exploit the new lead-management tools. “But managers are used to Sales 1.0,” Trailer notes. These managers must learn when to use incentives to promote change and when expectations or the system itself must be changed. “[Managers] must not mistake a training problem for a reward problem.”HIGH AND LOWSales compensation is clearly changing. In the latest CSO Insights survey, reps with quotas below $500,000 increased sales from 18 percent to 21 percent, while reps with quotas of more than $4 million increased sales from 12 percent to 19 percent. “Both the very low and high ends increased,” Trailer notes. Technology may be pushing quotas up for the best-compensated reps, while the recession cuts quotas for the less well paid. Trailer agrees with Colletti that new tools should make salespeople more effective, enabling an increase in quotas. But he cautions that many reps do not want more pay, just a certain pay level and a balanced life. The new lead tools, with their marketing metrics, should affect marketers’ compensation. “You will not find a chief marketing officer today who is not under pressure to show a return on [lead] programs,” Trailer observes. Marketers were measured by quantity of leads but now are measured and rewarded for opportunities, first calls, or even revenue. But Trailer cautions managers not to overemphasize compensation and incentives. CSO’s latest survey indicates only 75 percent of managers feel their compensation plan really drives behavior. The other quarter sees compensation as having minimal or unknown effects. “Sales is a lot more complex today. There are many factors it is complicated to turn all the knobs.”YOUR CUSTOMER’S SHOES”Think of Sales 2.0 as a way of getting into the shoes of your customer,” advises Anneke Seley, CEO of Phone Works. “You have to flip your mind-set to drive behavior to satisfy customers. It is important for reps to hit their quarterly numbers, but they should help customers reach their quarterly numbers, as well. It could be interesting to compensate reps partly for that.”Seley, who designed Oracle’s inside sales force, urges managers to look at where high tech is now heading, toward cloud computing and Software-as-a-Service (SaaS). “When you sell SaaS as a subscription instead of as a site license, you must keep delighting customers year after year. There is a huge satisfaction and service component for renewing customers.” Making compensation partly depend on satisfaction and service also makes a lot of sense. Siebel, before its acquisition by Oracle, compensated reps partly for customer satisfaction.Sales 2.0 will also discourage the lone-wolf rep in favor of more collaboration and sharing of best practices, in Seley’s view: “Instead of having a few people who blow out their numbers, the whole team works in the best way, and lower reps are elevated by top reps.” Instead of giving annual prizes to the top three reps — often the same three reps year after year — why not structure noncash incentives so that the whole team wins a bonus if it reaches the goal?Referrals also become more important in Sales 2.0, so these may form one metric for cash-incentive compensation or become the object of contests or goals in noncash incentive programs. The notion that incentives, cash or noncash, are appropriate for marketing as marketing results become measurable is not new to Seley: “I have worked like that for 25 years. Part of marketers’ compensation should be tied to metrics, like qualified leads delivered or even the company making revenue goals.” Marketers do not close deals, she continues, “but they do contribute qualified leads and nurture them and provide support materials.”Oracle compensates marketers partly on their performance, and this includes inside sales reps who develop qualified leads. “Some leads need the human touch for complex sales, while others do not,” Seley notes. “If you use technology, you can reward the people who develop successful e-marketing campaigns. If a human does it, reward the people who do the qualifying.” MEASURING TOOLSDavid Berman, who headed sales at WebEx, believes Sales 2.0 will have significant effects on sales incentives. “There are a number of activities that go untracked that lead to final sales,” Berman says. “Sales 2.0 tools can measure the quantity and quality of these presales activities and help managers structure an incentive plan that rewards these activities.” For example, referrals might earn a bonus or spiff. Or a sales-support staffer who converts a “B” opportunity into an “A” opportunity might be partly compensated on this basis. “Companies should track referrals to the sales team and consider spiffs or bonuses for people who provide qualified leads,” Berman argues.Such Sales 2.0 tools as Genius.com and Marketo can automate cultivation, scoring, and routing of leads. This should move marketers toward performance-based compensation, say, for leads in active pipelines or sales closed by a certain time. “These activities are now specific and measurable,” Berman notes. “The most successful companies are marketing-driven and track marketing efforts all the way to the sale.”Berman says Sales 2.0’s potential for increasing productivity should be especially helpful for large companies whose reps must track hundreds of orders per month for commissions. When questions arise about orders, reps now spend a lot of time resolving them. Sales 2.0 tools, such as Xactly, let reps track and audit customer orders and compensation easily and quickly, saving a lot of time. Less time wasted should mean more sales and commissions.Lead-management firms at the center of Sales 2.0 are already seeing some of these changes. “We are seeing more and more marketers get performance-based comp,” says Will Schnabel, vice president of international markets at Silverpop. “First they get bonuses based on qualified opportunities delivered to sales. That is now quite common.” Schnabel also sees some firms giving marketers incentives based on ultimate sales. “This is new, mostly done by new companies, and there are questions about it,” he acknowledges. But marketers do provide the product materials that help close sales. “Why not give them bonuses partly on close rates?” Schnabel suggests. In any case, he says the general trend is for marketing to move farther down the sales funnel and receive incentives for steps that occur at that point.IMPACT AT THE TOPThe impact of new tools is showing up in compensation design at even very large companies. Callidus Software handles more than $1 billion in compensation for more than 1 million reps. Senior vice president and chief technology officer Michael Graves says Callidus is increasingly pressed to improve the alignment of sales and marketing — by market and territory and for general growth goals — when meeting company objectives. “Companies are increasingly focused on certain business objectives. Instead of [paying] the traditional percentage commission on a transaction, they want to know which reps are selling to what markets. We are starting to see more reps compensated based on certain activities, for example following up on leads and Webinars. And we see some nontraditional metrics [being considered], such as customer satisfaction.”Marketers, too, are compensated at least partly for achieving company goals. Graves calls it “managing by objective,” and it is affecting both performance management and compensation plans: “They want to tie the sales and marketing folks together. Instead of just throwing leads over the fence to sales, marketers are being rewarded for qualifying leads and turning them into opportunities and even sales growth. There is a lot of interest in that.”