When an organization’s board of directors wants answers about spend and return-on-investment, sales leaders often panic. How much should we really be spending on our sales force? How many new customers should we be acquiring? What is a typical investment ratio? Sales leaders have to know how their organizations stack up against competitors before the board starts asking tough questions. Unfortunately, the right benchmarks are quite difficult to obtain. In the realm of sales strategy and execution, the Alexander Group (AGI) has focused considerable investment, time and effort in understanding which numbers really matter in the manufacturing space. Below, AGI offers four of its key benchmarks essential to evolving manufacturing sales models.
- Revenue Growth: How much revenue do New Accounts and New Products generate?
- Sales Investment: How much does a company invest in the sales force as a percentage of revenue generated?
- Quotas: What are average quotas for territory account managers?
- Compensation: How much does a company pay them?
The manufacturers AGI surveyed expect, on average, 10 percent of revenue to come from new accounts and 12 percent from new products. Nearly a quarter of revenue, that is, must come from new sources. For building systems manufacturers, over 40 percent of revenue comes from new sources. Sales leaders indicated that these ratios will only grow. What does this mean if a company does not focus heavily on new customer and product growth? Quite simply, growth will lag and more innovative competitors will dominate the market space.
On average, manufacturers invest 3-10 percent of revenues in the sales force. This includes seller compensation, management compensation, sales enablement, field marketing and a few other core investment categories. These ratios are primarily for geographic territories and do not cover strategic, national or global accounts, which may have more leveraged investment structures.
So should a company invest 3 percent or 10 percent? Investments are generally lower when manufacturers sell more ‘commodity’ products and/or are leveraging indirect channels (manufacturer representatives, local distributors/dealers, for example). Investments are higher for selling highly technical, high-margin products. There is never a ‘perfect’ investment ratio. But knowing if one’s organization is high or low overall and on which investment categories the company focuses is important.
Quotas and Compensation
The typical territory account manager working primarily with end-customers/influencers carries a $3-6M quota and will expect $100-120K in target compensation. For account managers covering indirect channels, pay is similar and quota expectations are roughly double those of direct sellers. That means a company gets about 2 to 1 leverage by using manufacturing representatives or other channel partners instead of going direct. These channel partners, though, still need active support from an internal account/channel manager. Quotas can be higher when account managers cover larger, more strategic accounts; but that brings up the question of whether sellers need a different coverage approach for those types of accounts. If account managers are bringing in less than $2M, companies need to determine if territories are properly balanced and/or have a high ceiling for growth.
Final Word on Benchmarks
At AGI, we love benchmarks as much as, if not more than, our clients. But keep in mind, benchmarks are only a starting point. Sales models are complicated entities. In manufacturing, in particular, they are rapidly evolving. Benchmarks also do not inform organizations of ‘best’ or ‘cutting edge’ practices. A company may strive to achieve a target number, only to find that top competitors are already creating a new standard. If you are keen to discuss some more numbers, and what they might mean for your organization, please contact one of our Manufacturing Practice leaders.
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