What you’re about to read may well make me a little unpopular with some sales people. The subject, “How to drive real results around net new logo business”, as opposed to only realizing sales from existing or renewal business confounds just about every sales manager I’ve ever met. In this blog, I’ll describe my approach to this which is based on job description, performance management and most importantly, the right compensation plan.
I’ve been at this a long time, and how to get sales people more responsive to growing their client base beyond that of existing clients is a conundrum as old as the Dead Sea scrolls. It’s a challenge faced by just about every sales organization I know. I’ve been party to so many discussions about this, and worked with so many that manage B2B sales people that I can say almost without exception that their frustration and total state of bewilderment on how to deal with it is unparalleled.
I’ve seen every variable from offering extra compensation for new business, to contests and awards. I’ve seen the begging and pleading approach and the “let’s get them motivated” tactic, but in the end, I’ve yet to see any of these solutions be effective. My perch, or view-point is unique because I come to it based on experience with many organizations and industries spanning multiple platforms. I’ve worked with companies in the technology and logistics sector and been engaged by companies in aerospace to the financial services sector, and everything in between, and within each vertical, multiple companies.
Bottom line? Nothing is working.
If you want the solution, then you need to start not by asking “how will we ask our sales force to do this extra thing”, but instead by asking what does the job description already call for ?
If a sales person’s job description is to maintain and grow existing accounts as well as find and sign new ones, then that has to be the starting premise. New business development can’t be subordinate to renewal business or portrayed as “going the extra mile”, but rather a part that is equivalent in importance to existing business. New business has to enjoy the same level of status and priority.
The solution starts with the notion that a sales person’s comp plan is only paid out by actually delivering results across all the requirements of the job description, not just some.
Existing accounts are, if one can say there is an easier part of a sales person’s job, the less difficult type of business to secure. Generally speaking, client relationships are established and comfortable. The clients are usually “vested” in their vendor relationships, which makes “jumping ship” extra work and risk in of its-self, even for what they believe might be a better choice.
It’s a whole bunch harder to win a new account than it is to hold onto an existing one.
There is predictability to existing business, often where a rep enjoys the comfort of making quota on a long-term contract that therefore requires more of an account servicing role, making it an easier gig.
When a sales person is assigned a territory with existing business, it could well be characterized as a privilege. No question that current clients and their business is important and requires hard work, but the effort and skill required to maintain that business pales by comparison to what is required to land net new logo business.
So, how can management ensure sales people are equally accountable and motivated to hit both new logo business and renewal business targets? It needs to start with the right job description and management expectations as mentioned above. Then, by structuring a comp plan that requires a sales person to achieve both quotas if they’re to be compensated for individual quotas.
Fully rewarding a sales person for only “hitting quota” on renewal business is counterintuitive to rewarding a sales person for getting the whole job done, if getting that job done includes finding new business as well, i.e. each quota and the compensation paid for reaching each quota must be interdependent on achieving both quotas.
If we can reasonably expect a sales professional to hit their number for existing business, or to put it another way, to do their job without further compensation beyond what their existing comp structure provides for, then we should also be able to expect that person to achieve quota for new business, again without financial reward beyond what their comp plan provides for.
Paying a sales person in full for making quota on one part of a plan doesn’t make sense if the plan, or the job description definitively defines two quotas as part of their job function.
While a company can structure a compensation plan in many ways, how the plan is weighted can vary. The essential concept has to be that while making quota for existing business is important and good, delivering on a new business quota has to be part of getting paid in full for the easier part of the job. Otherwise the company is only rewarding account managers. If they’re sales people, then that role must include hunting as well.
Lets say a sales person’s quota calls for $500,000 in existing or renewable sales, for which the
compensation plan allows for a 20% commission, or $100,000. Lets also say that same sales person has a new business quota of $75,000, for which they would earn a 35% commission, or $26,250. Their total compensation would be $126,250 for $575,000 in sales.
However, the new business remuneration is only a small part of their package, and even if the new business commission is open ended and pays a higher percentage, the effort required to achieve it may seem too much bother to the sales person who may well be happy making $100,000.
If the sales department has fifty sales people that all made plan then, the company would have sold $25,000,000 in existing or renewed business and $3,750,000 in new business. But that’s just the start, because once a new account is won, the potential for growing it is now a bigger opportunity.
It’s the $3,750,000 in new business that has the best chance for exponential growth, and it’s the companys’ best assurance of growth.
What if this same compensation plan, the plan that pays 20% on their renewal business (assuming they make quota) lowers to 15% if they miss their new business quota? This sales person now earns $75,000 – or possibly less – but more importantly missed the opportunity to not only make the $100,000 on existing business and the $26,250 on new business, but possibly a whole bunch more because any new business would continue to be paid at 35%, the new business wouldn’t be capped.
Obviously, the above formula can’t always be applied literally, and any formula needs to allow for the uniqueness and nuance of a sales person’s territory. What’s important is the principle, the concept that in order to be made whole on business that requires less effort, it also requires delivering the other equally important part of the job requirement.
Good sales people are competent and talented, work hard and at the same time are well paid, often very well paid. In what other job does one have the opportunity to make as much as one wants? Building territories is hard work and a sales person should be rewarded for that. But accounts belong to the company, not the sales person, and those accounts should never become merely an annuity but rather require an on-going contribution from the rep in exchange for the right to earn the same amount for a lesser effort.
Of course, this is one approach, and it may not be for you. The bottom line though, the one thing that has to change if there is going to be change is developing net net new logo business can’t be optional. If management is serious about it, and the job description clearly calls for it, then it needs to be non-negotiable, as so many other aspects of a sales persons job description are.
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