The Problem
My client, a software company offering software, training, and consulting services, routinely achieved year-over-year sales targets, and many sales representatives were meeting their quotas. However, company leadership was not satisfied with operating margins and voiced concerned about the sustainability of their business model.
Analysis led by the client’s Sales Compensation organization identified high cost of sale and low margin on popular services as primary contributing factors – fundamentally, high volume on low-margin services diluted the overall margin to unfavorably low levels. Prior to my engagement, the client modified the sales compensation plan to reduce the incentive to sell these low-margin services. As a result of this analysis, they employed a new compensation plan that had dramatic, unintended consequences – highly-coveted sales talent left the company, revenue on software dropped, and margins shrank.
Task and Approach
The client asked for help evolving their sales compensation strategy – using the existing compensation plan, I was asked to create a 3-year plan that would introduce minor modifications to the compensation plan each year with the goal of increasing sales talent retention, reversing the software revenue trend, and ultimately embedding a systematic approach to sustainable profit.
Research I conducted through problem discovery sessions, end-customer feedback sessions, and client stakeholder interviews provided me with a robust understanding of the client’s goals and constraints. I then conducted a deep quantitative analysis to understand their customer’s journey with their product and services. This step included analysis of historical revenue by customer and product or service to better understand how the market needed my client. I then created an end state compensation plan based on an optimized revenue stream mix to meet margins while also satisfying the needs of their customers.
Starting with the end of the 3-year plan in mind, I worked backwards, identifying incremental improvements that needed to be made each year that would achieve the desired outcome while striving to minimally disrupt existing sales engagements.
Results
This client is in the 3rd year of the recommended plan, and the outcomes continue to trend in the desired direction. I highlight 3 observed outcomes here:
- Meeting the customer where they are = sales success: The evolving sales compensation strategy adopted by my client incentivizes sales executives to sell products and services that give the customer what they need while allowing the sales organization to achieve success.
- Revenue recovery and margin stability with a positive trend: Executive leadership acknowledges a positive trend in revenue and margin growth, two key strategic objectives for their business.
- Talent retention and attraction: Sales staff are happier, and employee turnover at the Account Executive position has reduced by 50% in the last 2 years. The client attributes this shift to selling for a successful organization and increased quota attainment.
The client is experiencing these outcomes during a period of high downturn in their industry and dramatic personnel reductions in sales support staff.