I recently read an amazing book, Sales Insanity by Cannon Thomas, and it's a mind-blowing compilation of actual sales blunders made by real people. Every salesperson and business leader must read this excerpt but who is Cannon Thomas... really? It's not his real name and I managed to uncover his identity and then obtain his permission to share some of the insanity in this post. He is one of the best sales consultants on the planet. Enjoy this almost unbelievable true story and if you think you know who he really is, send me an InMail and I'll confirm. Here is an incredible true story from 'Thomas'.
Sales management spends a lot of time trying to motivate salespeople. Unfortunately, this can create an outsized sense of urgency that emphasizes short-term activity over the achievement of long-term goals. And management can fall into the trap of relying on incentives as a replacement for good, attentive management. But make no mistake—motivation is extremely important to the sales force.
Of course, motivation is not exclusively for salespeople. From the factory floor to the executive suite, you’ll find rewards, recognition, and incentive plans everywhere you look. Which makes sense. You want your employees to come to work every morning with a desire to do well, and acknowledging good performance is a very powerful way to keep a strong wind in your employees’ sails.
If you break down any incentive program to its most basic components, there are two fundamental pieces. First there is the performance target. This is the level of achievement at which the worker’s productivity is declared a ‘success.’ For a factory worker, this might be fabricating 15 units per hour, or for a marketing executive, it might be achieving a 25% market share. Of course, the most typical performance target for salespeople is to accrue a certain level of sales revenue per year—also known as their quota. Whether it’s $50 thousand or $5 million, salespeople know exactly what level of performance represents success.
The second component of an incentive system is pretty obvious—the incentive itself. This is the reward that workers receive if they meet their performance targets. The incentive for a sales force is most often a cash payment, but it need not be. I’ve seen salespeople who were extremely motivated by all types of non-cash incentives, such as trophies, medallions, rings, and certificates. Just being recognized as a success has its own intrinsic value.
There are many other considerations in administering an incentive program, such as the mechanisms by which performance is calculated, the process of setting objectives, and the timing of the actual rewards. But in general, you can motivate your salespeople successfully if they simply know what they need to do and what they’ll receive if they do it.
What you absolutely do not want to do is screw up your incentives so badly that you actually demotivate your sales team. During my career I’ve seen pretty much every possible way to design a suboptimal incentive system, but most of the time the blunders were benign enough that they didn’t completely destroy the integrity of the program. However, there is one particular instance of poor incentive plan design that was not only devastating in its badness—it was intentionally perpetrated by the company’s executive leadership.
The Worst Practice
I was hired by a high tech manufacturing company to perform a general assessment of its sales force. Unlike most of my consulting projects where there was a specifically known problem that needed to be resolved, my client was just generally displeased with the performance of its sales force. The company had not reached its revenue growth goals for several years, and the head of sales was on a short leash to get things into shape.
We were in the process of conducting sales leadership team interviews, during which we were asking a variety of questions about the sales force’s organizational structure, selling roles, sales processes, enabling technology, compensation plans, and other topics. You never know what will come out of these interviews, and they’re usually uneventful fact-finding excursions. But once in a while you hear something that is easily identifiable as a serious problem. For example:
Speaking with the company’s director of sales operations, I opened our conversation with a big-picture question.
Me: I understand that your sales force’s performance has been disappointing for the last few years. I’d be interested to hear your opinion of what’s going on. Do you think it’s an issue with the skills of the salespeople, or is there something else that’s holding them back?
Director: Well, I don’t think it’s a lack of skill that’s the problem. Our salespeople are actually pretty talented and experienced. In fact, I worked for one of our competitors prior to taking this role, and I’d say that our sales force here is of higher caliber than our competition’s.
Me: So if they are both talented and experienced, why are they struggling?
Director: Honestly, I don’t think they’re very motivated to succeed.
Me: That’s an interesting thing to say. Why wouldn’t they be motivated? I’ve seen their compensation plans, and they look pretty generous.
Director: Yes, they would be quite generous, if anybody ever achieved quota.
Me: What do you mean?
Director: No salespeople ever make their quotas.
Me: No salespeople ever make their quotas? Like … None of them?
Director: No. I’ve been here three years, and no salesperson has ever reached his or her quota during that time. So they never get the big incentive payouts.
Me [squinting]: Umm. Why don’t they reach their quota?
Director: Because their quotas are set ridiculously high. It would be virtually impossible for anyone to reach them.
Me [now with my head tilted slightly]: Why are they so high? Who sets them?
Director: The CEO of the company. For some reason, he thinks that salespeople shouldn’t reach their quotas. He believes sellers are only motivated if they have something to reach for, so he sets these ridiculous goals for them.
Me [now blinking rapidly]: Huh.
Director [shrugging her shoulders]: Yeah, I know.
Me: Well, I’ve never heard of that before. But what you’re telling me is that his plan isn’t working. It’s actually backfiring.
Director: Yes, the salespeople are actually demotivated in my opinion. Obviously we’ve discussed this many times, but the CEO is adamant that this is the way he wants the compensation plans structured. I don’t see it changing anytime soon.
Me: Then I’m not sure I see the company’s sales results changing anytime soon.
Director: No. Me neither.
In a subsequent interview, the head of sales identified the same issue as a major barrier to success, though he expressed it with a much higher degree of frustration. He knew that it was a bad management strategy to try to motivate salespeople by assuring their failure. No matter how rich the incentive, it’s not motivational if the target is completely out of reach.
In the end, we proposed implementing some cash-based sales contests and other non-cash incentives to create some carrots that were actually edible. But what a mess it was. I never spoke to the company’s resident expert in motivation—the CEO—so I really don’t know what he was thinking. But I’d wager that he never held a sales role, or else he’d have realized the folly of his strategy. I’d also wager that his own compensation plan was a little more forgiving than those of his sellers, and that he got a nice bonus every single year.
As a rule of thumb, you should set your sales targets such that two-thirds of your salespeople achieve their quotas. This ensures that your solid performers get to taste success, and those who don’t still view their goals as attainable in the future. Regardless, it’s a definite Worst Practice to doom all of your salespeople to failure, including your top performers. When you start a race that you know you won’t finish, you tend to do a lot of walking along the way.
The Good Ideas
Good Idea 1: Set Your Sales Targets Carefully
Sales targets can be set in a number of ways, from the top-down allocation of the company’s target to field-level negotiations between sellers and their managers. However you choose to go about it, make sure your salespeople’s performance targets are viewed as achievable. You want to motivate your sellers to high levels of performance, but you don’t want to set them on a path to assured failure. When targets are set properly, your top performers will reach them and your bottom performers won’t. But they should nevertheless be motivated to try.
Good Idea 2: Create a Culture of Success
People like to succeed, and success is contagious. Don’t be afraid to feed a culture of success by setting your sellers up to win. And when they do, celebrate their victories loudly. Once your salespeople’s sails are full of wind, they’ll tend to pick up speed, and the resulting revenue regatta will be a beautiful thing to watch. It sure beats watching your fleet of boats sitting dead in the water, with no wind in the forecast.