Most sales forces use goals to focus their salespeople. Companies often link sales-force incentive pay to goal achievement, which makes effective goal-setting essential.
Even in today’s data-rich environment, market and economic uncertainty can make it challenging to set reasonable and fair sales goals. Setting goals for the sale of new products is especially difficult. Goal setting is further complicated by digital channels and influencers who can sway customers and blur salespeople’s effect on buying decisions.
What are strategies companies can use when goal setting is likely to be error-prone? Here are six of them:
•Reward a range of performances: Rather than setting goals that focus attention on a single number, define performance ranges. Rather than a specific goal of, say, $2 million for a salesperson, set a “success range” of $1.8 to $2.2 million. Have incentive pay kick in at $1.8 million and rise with performance.
• Allocate a percentage of the national sales to each salesperson: This method works when you know how opportunity is distributed across territories but are uncertain of the overall opportunity. Assign each salesperson the percentage of national sales that she should contribute. Then allow dollar goals to rise or fall with national performance. The downside of this approach is that it can encourage salespeople to compete against each other, rather than focusing externally on beating competitors. You can achieve similar results without this downside by giving salespeople somewhat easy goals with modest incentives and allowing incentives to escalate with company performance.
• Set goals with short time frames: When goals turn out to be unreasonable, short time frames limit the potential damage. This strategy works best in sales forces that execute many transactions with short sales cycles.
• Set goals for sales activities rather than results: If you can’t predict sales, consider measuring and setting goals for the activities contributing to sales. These might include new leads generated or joint sales calls to cross-sell products. Setting goals for sales activities can sustain salespeople’s motivation throughout long sales cycles.
• Eliminate goals and pay incentives on sales or sales growth: Paying salespeople for goal attainment increases fairness when there are differences in opportunity across territories, provided salespeople’s goals acknowledge these differences. But goals aren’t needed for fairness if territories have equal opportunity, or if no single territory is close to tapping its opportunity. Goals are also less important when sales carry-over is low.
• Pay the sales force like management: Short-term sales goals are not the only way to direct and motivate a sales force. For example, if salespeople work in teams on large deals with long sales cycles, consider using an approach similar to a management bonus program. Instead of linking incentives to short-term sales goal attainment, use metrics reflecting long-term team performance and individual effort contributing to team results.
Perhaps this shift in sales management philosophy is inevitable in today’s environment. Digital channels are reducing salespeople’s impact on sales and challenging companies’ ability to measure impact. This makes traditional goal-based incentives less effective for sales management.