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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