Why You Should NEVER Give Your Sales Force Profit Targets
by Sandy Vaci
A lot of companies give their salespeople profit or revenue targets and manage them based on the numbers. They call this “empowerment”, “being close to the business”, “sharing real responsibility” and the like. I call it “a fatal mistake”. Why? First,it demotivates your best sales performers. They will quickly realize that Head Office has much more control over revenues (through pricing, marketing support, product upgrades) than they ever could. It doesn’t matter how hard you work if you cannot control your numbers by it. This is very demotivating to good salespeople.
Second, it gives your not-sogood performers an excuse for their sub-par performance. After all, if they cannot control the numbers anyway, it wasn’t their fault… Third, profits are a lagging indicator. They tell us if we did things right or wrong but do not allow us to change it. Instead, we should use leading indicators that predict whether we will achieve our targets or not and give us a chance to intervene and fix things before it’s too late. So instead of profit targets, why not use the number of sales calls or sales meetings, and the efficiency with which your team converts Step 1 opportunities (e.g. calls) into Step 2 ones (e.g. meetings), then into Step 3 (sales closures).
Of course, profit targets may have their place, but only at more senior levels. They are OK for a senior relationship manager who deals with a few large companies, but not OK for a junior sales rep who deals with dozens of single buyers each day. But how do I evaluate all salespeople in a standard way then? The way to resolve this dilemma is to use a balanced scorecard.
A balanced scorecard will have profit as one area among 5 or 6 crucial ones (such as activity measures, service quality, people management, audit scores, etc). Depending on the level of the person, its weight can fluctuate between zero and 50 percent. This allows for one, single format to evaluate all salespeople in the most appropriate way.