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Comments or Suggestions?
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By Dennis Spahr, Senior Manager, The Alexander Group, Inc.
The Devil is in the details, and nowhere is that truer than in the compensation plan for Strategic Account Management positions.
Faced with an ever-tightening labor market, your ability as a manager to recruit and retain the best Strategic Account Managers (SAMs) often comes down to how your company handles the details associated with its SAM compensation plan. Details like quota allocation, quota adjustment and sales crediting issues can steal your SAMs’ time and attention just like that rattle in the instrument panel of your new luxury car can steal yours.
Just as you second-guess your automobile purchase, that newly-hired SAM might start second-guessing his choice of employers if you don’t pay attention to those pesky little details of the SAM compensation plan.
So, what can you do?
Your company just purchased Strategic Account Management Association’s 1999 Survey of Strategic Account Management Compensation Practices. You’re encouraged because the target compensation for your SAM plan is at the 75th percentile of the survey, the target mix is 75/25 and you have three performance measures – sales results versus quota, strategic account profit and a management discretionary bonus.
But as you read on in the survey, you see the same old feedback you heard when you oversaw the core sales organization – “increase base pay,” “increase the incentive at high end,” “eliminate caps,” etc. (see figures 1 and 2).
You’re reminded of the time and energy spent convincing your top salespeople how valued they are, and you start thinking about that new SAM again. What if the quota isn’t as attainable as you said it is? What if your company can’t track the sales into his account accurately?
QUOTAS: CAN’T LIVE WITH ‘EM, CAN’T LIVE WITHOUT ‘EM
As Figures 3 and 4 show, approximately 51 percent of the SAM plans surveyed measure performance based on “Sales Results vs. Quota”, and the average weighting given to this performance measure is 59 percent. With so much of the SAMs’ incentive tied to sales versus quota and with strategic accounts making up approximately 42 percent of a company/division’s revenue , how quotas are set for strategic accounts not only affects the SAMs’ performance against expectations, but also the company’s performance overall.
To complicate matters, almost as many SAMs feel their quota is not a fair basis for determining compensation (39%) as those that do (44%) (see figure 5). At the same time, 54 percent of SAMs surveyed either “favor” or “strongly favor” trading off base salary for higher earnings potential (see figure 6). What’s going on here?
When quotas are allocated and adjusted properly, SAMs – like other sales personnel – are confident in their ability to make the quota and many are willing to give up salary for the shot at the “big money.” But when quotas are allocated or adjusted poorly, SAMs can spend a lot of time debating their quotas rather than making their quotas.
Three Quota Allocations Methods for SAMs
Sales managers may use a variety of methods to allocate quotas to SAMs and to the sales force as a whole. Among the most useful are the Share method, the Modified Share method and the Account Planning method.
The Share method is the most basic, while the Account Planning method is the most comprehensive, requiring significant time and data, as shown below (see figure 7). For strategic accounts where a supplier is very familiar with the buying needs of the account, the Account Planning method is usually recommended.
Share Method
The Share method considers each strategic account’s contribution over the previous years as a percent or share of the company’s overall sales objective. The strategic account’s quota is allocated based on this contribution.
This is a basic, but effective quota allocation method, because it can be used with limited sales history or market data. However, it does not consider market factors in quota allocation and often penalizes high performing SAMs with even more aggressive quotas.
Modified Share Method
The Modified Share method builds on the Share method, to include factors that may affect the strategic account’s potential. Modified Share identifies the key factors that differentiate strategic accounts and assigns weights to each of these factors. Factors may include market growth potential, market share, competitive intensity, experience in the territory, required workload, etc.
Once Share quotas are established, each strategic account’s quota is then modified, up or down, based on these factors. This method can be useful if SAM managers have good knowledge about each strategic account, but many times there is insufficient market data available to develop an appropriate algorithm for the market factors.
Account Planning Method
Account Planning is a very effective tool for developing quotas for strategic accounts. This method considers each account location, or the largest locations, on an individual basis to evaluate growth potential over the next year. The account plan for each location should consider:
 Total strategic account location sales potential
Current company sales
Attainable opportunity
Stage of the sales process
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Enabling factors
Barriers to opportunity
Probability of capturing the attainable opportunity over the next year
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The total expected sales growth for each location equals the sales quota for that strategic account. Account planning is most effective when done in tandem by the SAM and the SAM manager with input from other salespeople working with various account locations as needed.
A.
Strategic Account Location
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B.
Total Location Potential
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C.
Company’s Sales at Location
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D.
Remaining Sales Potential at Location
(B – C)
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E.
Stage of Sales Cycle
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F.
Probability of Selling Remaining Potential
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G.
Expected Sales Growth
(F x D)
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Location 1
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$200,000
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$80,000
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$120,000
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Presentation
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75%
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$90,000
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Location 2
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$40,000
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$20,000
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$20,000
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Producing/ Servicing
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50%
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$10,000
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Location 3
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$110,000
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$100,000
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$10,000
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Producing/ Servicing
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100%
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$10,000
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Location 4
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$50,000
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$0
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$50,000
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Proposal writing
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20%
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$10,000
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Location 5
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$350,000
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$0
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$350,000
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Presentation
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50%
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$175,000
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|
Location 6
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$500,000
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$0
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$500,000
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Proposal writing
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20%
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$100,000
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Total
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$1,250,000
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$200,000
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$1,050,000
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$395,000
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Quota Adjustment– Oil Change or Major Engine Repair?
Ideally, quota allocation problems should be addressed early on in the allocation process and not through quota adjustment. Many companies spend a lot of time and energy adjusting SAM quotas when their time would have been better spent creating a repeatable and stable quota allocation process. This is like the person who never changes the oil in his new luxury car and eventually has to pay for major engine work.
In contrast, companies that understand the need for quota adjustments can usually point to an explicit quota adjustment policy that exists to ensure credible and stable quotas. These companies realize that even well-allocated quotas may need adjustments due to acts of God, customer acquisitions/mergers, customer bankruptcies, changes in account base, transfers/promotions, etc., just as the luxury car - rattles or not - needs to have its oil changed every 3,000 miles.
These companies also review the SAM’s quota if he or she is at unusually low or high levels of attainment (e.g., 50% or 150%). If there is ample evidence that a quota needs to be adjusted, and if the quota adjustment is large enough (e.g., more than 15% of annual quota), the SAM’s incentive earnings should be reconciled and a new quota given.
Who Should Get Credit for Strategic Account Sales?
The companies that succeed in handling the details of SAMs’ quotas are also the ones that have clear crediting policies established prior to a given performance period. Sales crediting procedures are very important because they impact both quotas and incentive earnings for the SAMs. Examples of three typical crediting methods are shown below.
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Crediting Method
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Description
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Advantages
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Issues
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Impact On Quota Allocation
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"Single" Credit
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Credit only one resource for any sale.
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Simple
Easy to administer
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Does not work well in a "team" environment
May not provide adequate reward/recognition for SAM or sales representative
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N/A
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"Split" Credit
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Credit multiple resources on appropriate sales. Each resource involved in the sale receives a percentage of the credit. Total percentage credited to all resources should add up to 100%.
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Provides adequate reward/recognition
Can reward "teaming" of sales resources
Can vary reward based on contribution
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Disputes related to split percentages
Puts increased emphasis on quota allocation
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Split credit opportunities by strategic account location must be included in the calculation of the SAM and team quotas.
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"Double" Credit
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Credit multiple resources on appropriate sales. Each resource involved in the sale receives 100% credit. Total percentage credited to all resources exceeds 100%.
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Provides adequate reward/ recognition
Can reward "teaming" of sales resources
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Can increase cost of sales
Puts increased emphasis on quota setting
Can "mask" actual performance against the business plan
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Double credit opportunities by strategic account location must be included in the calculation of the SAM and team quotas.
Summation of individual quotas allocated will be larger than the business plan.
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As you can see, each crediting method has its advantages and disadvantages, but when it comes to strategic accounts that are mainly sold through teams, the recommended approach is to “double” credit the account as shown in figure 8.
By double crediting, you avoid the disputes that inevitably come from using split crediting and, thus, free your SAM up to focus on the strategic account itself, not the details of his or her compensation plan.
Committed to the Plan?
Strategic account programs that have fared well over the last several years have done so due in part to their commitment to linking the SAM compensation plans to the goals and objectives of the strategic account program itself. But that commitment, like your commitment to your new luxury car, can only last so long if details such as quota allocation, quota adjustments and sales crediting issues are not addressed.
Companies that commit to working out the details of their SAM compensation plans will find they have SAMs who are happy in their work and who are focused on that work. Those companies that gloss over the details may find themselves looking for another SAM very soon.
After all, if the rattle in your instrument panel makes you question “Luxury Car Company X’s” commitment to quality, why wouldn’t your SAMs question your commitment to them if you don’t fix the “rattles” associated with their compensation plans?
Dennis Spahr is Senior Manager at The Alexander Group, Inc. He can be contacted at dspahr@alexandergroupinc.com.
Previously published in Velocity(tm), quarterly magazine of the Strategic
Account Management Association, Volume 2, Issue 3, Third Quarter 2000. For
reprints or subscription information, call 312-251-3131, or visit the SAMA Web site at
www.strategicaccounts.org.
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