From the moment Sanj Sanampudi hit the stage at WorldatWork’s Spotlight on Sales Comp Conference and Exhibition in Chicago, he challenged the professionals in the room to think differently about how they build their sales compensation plans.
Sanampudi, cofounder and CEO of Concert, which was recently acquired by fellow computer software company Varicent, engaged attendees with stories to illustrate the importance of setting the right targets in incentive plans.
“If you learn nothing else from this session,” said Sanampudi, “targets really matter.”
Sanampudi’s first example was his personal experience in running the New York City marathon. The marathon statistic he cited was the highest average time is 3 hours and 59 minutes. There is nearly a 40% drop off in the number of runners who finish with a time of 4 hours and 1 minute. This, he said, is because runners are motivated to run the race in under four hours and when they realize this is an attainable goal, they push themselves to achieve it.
“Smart targets prepare us to learn,” he said. “Smarter targets help us to perform better.”
As it relates to sales quotas, Sanampudi advocated for lower ones to improve performance, which might go against conventional wisdom. Human beings perceive the difficulty of targets, he said, through four dimensions:
- Spatial distance
- Temporal distance
- Experiential distance
- Social distance
By setting quotas in smaller, simpler numbers, salespeople are more likely to boost their performance. For example, the average amount a person needs to save for retirement is $1.7 million. When a person hears or reads that figure, it can seem so daunting that it’s actually counterproductive. However, if a person is told to set aside $500 to prepare for retirement, they are more likely to accomplish this goal.
The same psychology applies when you add in temporal distance. By telling someone they need to save $1.7 million over the next 40 years for retirement, they are less likely to accomplish this target than if they are told to save $500 each month.
Thus, in this same vein, Sanampudi proposes that sales organizations build a “blueprint to quota” model, which will clearly show a salesperson what they need to do and when they need to do it to hit quota. To do this, the blueprint should possess the quota, average sales price and quota end period date to inform how many deals need to be made and in what time period they need to be made to hit a quota. Step two for this process, Sanampudi says, is to enter the different pipeline metrics. There will be differentiation in the sales process by company, but organizations should track the number of days until a deal moves forward or is lost. The last piece of the puzzle is then tracking progress against the blueprint.
Another idea Sanampudi put forth was to pay sales reps based on their pipeline metrics, such as their development of marketing qualified leads (MQL), rather than just the end result of a deal. This, he said, will build better sales habits.
Lastly, Sanampudi advocated for more frequent review of sales pipeline conversations rather than forecasting sales, as this will lead to better outcomes. Ultimately, he noted, this blueprint to quota approach is built to improve the performance of the entire sales team, which often isn’t the case at organizations.
“Your superstar salespeople are going to hit their quotas no matter what,” he said. “You don’t build a comp plan for your superstars, you build it for everyone else.”