As we find ourselves in the middle of the 2nd quarter for many businesses, it’s a great time to ensure that the Sales department is pulling its weight for the organisation. The Sales function, being the life blood of the business, should periodically undergo a health-check, regarding its continued alignment to the overall strategy of your organisation.
How do you do that?
Sales alignment to strategy in your business is performed through a combination of hard and soft targets. Some are easier to measure than others. However, all of them have a significant bearing on the business strategy being executed effectively.
Organisations take their own approach to the actual measurement but the single most common thread is “pay for performance” across the sales team. Some call it commission (sometimes an emotive word), whilst others refer to it as revenue sharing.
The key to targets and revenue sharing is that everyone in the sales management chain needs to be part of the risk and reward structure. At the top of the tree the overall target should be a key measure for the Board and in particular the Sales Director. That is an important element of sales alignment to strategy.
As sales targets split and cascade down the organisation they need to remain linked so that Sales Directors, Sales Managers/Supervisors and frontline Sales Representatives are all measured consistently.
So what do you need to watch out for?
Begin with hard targets, as they are easy to define.
- The overall company revenue target (including expected growth) is the measure for the Sales Director and then stretched, usually between 5% and 20%, depending on industry and market.
- The stretch target is then allocated across all the Frontline sales people and they are given individual commission – or revenue sharing – plans.
- It’s their job to make 100% of target and when they do they typically earn the same in commission as their base salaries in most industries.
- Not making target is unacceptable and most organisations will not tolerate this more than once from an individual. Not all Reps make target but some over achieve so typically the overall team target can be met.
- Sales management are paid higher base salaries and lesser commission percentages than Reps, with the most important requirement of the sales director being to ensure that budgeted revenue is delivered.
- Delivering the stretch target means you have done better than budgeted and in that case everyone in Sales would probably make their on-target earnings and there would be many happy people in the organisation.
That should cover the hard target part on your sales alignment to strategy.
So, how can you get the other – slightly more tricky – part under your belt?
Soft targets are not typically rewarded in the same direct way. They are usually more difficult to measure and are the result of several departments’ work. They could be any of the following:
- Percentage of repeat business (six times less cost of sale than new business)
- Percentage increase in customer satisfaction
- Staff retention and morale (attitude surveys)
- Clarity of task to be performed in your sales function
- The behaviour of your staff with each other, the rest of the business and your customers
- The organisation’s influence in their market
- Positioning in market analyst matrices
To tell you, which of these give you a more accurate measure of the sales alignment to strategy in your company, we would have to sit down and have a more in-depth conversation about both your business and your sales strategies – which I’m very happy to do, by the way. Just get in touch.
However, let me leave you with some insight on sales alignment to strategy that I have gained over my (quite a few) years of experience in this field:
Whether they are hard or soft, measuring business targets – not just sales! – is the only way to measure how successfully your business strategy is being executed.
Targets being met – or not – are also indicators of motivation across the sales team. The first Quarter is the most important in any financial year. If you missed the numbers you will play catch-up for the rest of the year and pressures will increase as time goes by.
How did you do in your first Quarter? Are you playing catch-up already – or are you well on your way to deliver both your sales and business strategy for the year?
If your sales dashboard of the first Quarter looks healthy that’s wonderful, well done on your sales alignment to strategy. If not, a health-check may be required to better understand your sales department’s diagnostics and metrics, so you can check their alignment to your strategy. This will ensure you are better equipped to forecast whether you will deliver on your business strategy this year.