Riches to Rags: How to Reach Your Sales Goals But Blow Your Budget

By: Tyler Miller Cloud Sales, Digital Transformation, Revenue Growth Strategy, Sales Compensation, Sales Quotas, Technology Sales

A large SaaS firm was achieving overall growth goals, but sales compensation plan costs exceeded budgets. The company’s bi-modal quota attainment distribution was a significant contributing factor to these high costs.

A bi-modal quota attainment distribution occurs when large clusters of incumbents perform both below and above quota, with a gap at/near 100 percent of quota attainment.

In working with the organization, Alexander Group (AGI) determined that the organization could maintain average performance levels but reduce sales compensation costs by about 5 percent (approximately $9m annually for this large organization with +2000 sellers) by normalizing their quota attainment distribution.

Why is a bi-modal distribution expensive? Simply put, post-goal acceleration increases costs for high performers. High performers are more expensive per 1 percent of quota attainment than low performers. It’s a scenario where incumbent performance is concentrated around the threshold and excellence points will result in higher costs than a normal distribution around goal.

What causes a bi-modal distribution? While there are many potential risk factors, the main driver in this case was misalignment between job role and compensation plan design.

The partner organization had a role populated by hundreds of incumbents and set quotas based on average expected performance across the entire group. The role design focused on both sales and customer service but did not include a service metric in the compensation plan. Many incumbents focused on customer service more than sales. Service-oriented individuals regularly performed below quota, and the sales-oriented individuals overachieved.

AGI worked with the company to improve alignment between strategy, job role design and sales compensation plan design.

There are other key drivers of this bi-modal distribution phenomenon, each with its own potential solution:
There is no one-size-fits-all cure for this ailment. However, an organization can take steps to reduce the likelihood of a bi-modal quota attainment distribution occurring.

Improper plan design, such as inaccurately set thresholds and excellence points can contribute to cost increases, but effective quota management processes are a critical step toward managing sales compensation costs to budget.

Is your organization experiencing budget-blowing sales comp plan costs? Contact an Alexander Group expert today.

Learn more about AGI’s Technology practice.

Co-author: Rachel Parrinello is a principal in Alexander Group’s San Francisco office. She has written extensively on sales compensation issues.
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Tyler Miller

Tyler Miller is a manager in the Chicago office. As a manager, Tyler works with client leaders in sales, marketing, finance and human resources to solve revenue growth challenges. He designs and conducts fact-finding activities to understand client objectives and issues. He participates in and leads client meetings to present recommendations and consulting deliverables. Tyler manages business analyst and associate consultant resources at the Alexander Group on project engagements.

Prior to joining the Alexander Group, Tyler was a regional sales engineer for an industrial manufacturing company. He established and managed a distribution network and handled direct sales for large customers. Previously, Tyler worked as an executive recruiter, focusing on managing client relationships and creating hiring strategies for sales, marketing and engineering management teams in the industrial automation and medical device industries. He holds an MBA from the Kellogg School of Management at Northwestern University and a B.A. from Illinois Wesleyan University.

Rachel Parrinello

Rachel Parrinello is a principal in the San Francisco office. She is a leader in the firm’s Sales Compensation, Media Sales and Technology practices. In this role, Rachel delivers sales compensation expertise to many client engagements and directs the firm’s sales compensation IP and benchmarking methodology. Rachel’s fact-based, practical and aligned sales compensation solutions help her clients drive profitable revenue growth. She frequently speaks on sales compensation topics at various associations and partner events. Rachel has authored several articles and whitepapers including How Revenue Planning Drives Sales Compensation Success.

Prior to joining the Alexander Group, Rachel started her career in sales and sales management for two Fortune 500 hardware companies and an Internet-based software reseller start up. In addition to managing her sales territory growth, she developed and implemented customer segmentation strategies, marketing programs, sales training programs, sales tools development, job design and performance metrics. She transitioned to sales management consulting when she joined the Alexander Group in 1999. Rachel holds a B.A. from the University of California, San Diego and an MBA from the University of Texas at Austin. Rachel is also a Certified Sales Compensation Professional.