Six Key Sales Performance Indicators

Written by Tom Hurley

There are numerous performance indicators that can be used to evaluate your sales incentive plan.  This summary provides a resource to help you focus on the key metrics.  The six key performance indicators and helpful questions to pose will enable you to better understand how your sales incentive plan is performing.

1. Territory Bias
Evaluate territory bias to determine whether the quota setting process needs to be altered and/or the plan design provides too much incentive for outperforming quotas.  Review the distribution of actual sales versus quotas in each territory and compare the results.

Consider the following questions:
Is it easier for smaller territories to achieve quotas than the larger territories?
Are your top sellers leaving because the quotas are not set appropriately?
In setting quotas, are the geographic area, market size and market potential considered?

Sales Territories

2. Paying for Profitable Performance
In a well-designed plan, the risk of a low performing sales representative earning high pay is reduced. Carefully-crafted plans should reduce the risk of overpaying for the wrong results. Plot the actual pay versus actual profits to identify any outliers.

Consider the following questions:
Is pay consistently in line with the profits being delivered?
Are the top performers being paid well?
Are pay differentials appropriate between your top and bottom performers?
Who are the outliers and why is their pay high or low relative to profits when compared with other sales representatives?

Paying for Profitable Performance

3. Pay Mix for Different Roles
Financial budgets and operating schedules are designed around expected levels of performance and target pay mix.  When you take into account that the pay mix will vary by role, the actual mix should reflect the impact the role plays in the selling process.

Consider the following questions:
Is market data used to determine the appropriate competitive pay mix for the various roles?
Does pay mix vary between the various sales roles?
Are the variances appropriate based on the different roles and impact on the selling process?
Have sales roles changed and have the compensation plans been updated?

Average Pay Mix By Position

4. Motivation
Compare the actual distribution of performance across the sales force with the expected performance distribution.  Sales leaders within organizations are responsible for certain levels of performance yet it is unreasonable to expect all members of the sales force to meet performance targets.  You may also question whether your targets are being set appropriately if far too many sales force members exceed expectations.

Consider the following questions:
Are expectations too high or too low?
How many sales team members are achieving above target?
Were there any unforeseen circumstances that created differences?
Do the results correlate with the organization’s financial performance?
Do you consider the experience of the sales force when setting targets?

Sales Team Members Reaching Target

5. Incentive Leverage
Analyze the ratio of the average earnings by the top 10% of the sales force compared to the median earnings.  The ratio should tell you something about the type of selling. The less impact the sales role has on the selling process, the smaller the ratio should be.

Consider the following questions:
Is there enough pay differentiation between your top performers and your median performers?
How are leads generated and how long does it take to close a sale?
To what degree do sales support and technicians participate in the selling process?
Are sales coming from new or existing customers?
How does the ratio compare to historical pay data?

Average Earnings Per Sales Team Member

6. Relationship of Pay to Performance Ratings
Review the relationship between incentive pay and performance ratings to determine if your sales incentive plan is biased against your “top performers.”  Sales results ultimately drive incentive pay, but consider to what extent your top performers are being rewarded through the incentive pay plan.  Performance ratings take into account longer-term measures such as knowledge, skills, abilities, and leadership potential.  Often the top performers are asked to participate in strategic initiatives, which take time away from selling activities.

Consider the following questions:
How does pay for your top-rated sales staff members compare to the lower-rated?
Are you having trouble retaining your top performers?
What metrics are driving your pay in your sales incentive plan?
Are the metrics incenting the right behaviors?
Do sales managers feel as though their top rated sales team members are being rewarded appropriately?

Performance Ratings Relative to Earnings

Conclusion
Careful monitoring of your sales incentive plan will allow you to identify issues and make necessary adjustments to plan designs.  Changing business strategies and external factors require that you check your plan frequently.  The above performance indicators are just a few of the many analyses that are used to measure plan effectiveness.  In addition to the number crunching, be sure to engage in discussions with your managers and sales team members. The analytics and qualitative feedback will enable you to better assess the performance of your plan.

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Compensation & Rewards Now Trending

Now Trending

Our compensation and rewards consulting professionals have seen a significant uptick in the following types of projects:

  • Companies are revisiting their annual incentive plan design in an effort to ensure competitive rewards aligned with financial and strategic objectives.  As part of this, many companies are revisiting the way they manage performance.
  • Closely held and not-for-profit businesses, struggling to retain top performers, are looking to provide long term wealth building compensation opportunities linked to the long term growth of their organization.
  • Board compensation committees seeking independent counsel to assist with their role in oversight of executive compensation as a result of increased regulation and transparency.
  • Public companies are looking at "relative performance" plans to deliver both short term and long term incentives.  Total shareholder return or TSR plans have become more popular to create alignment of pay and performance.
  • In the health care industry, it has become a priority to create rewards strategies in an environment where doing more with less is critical.  Now trending are more outcomes-based and quality-based rewards.

What is Driving the Change?  Many factors are creating the need to revisit compensation strategies including competitive forces in the marketplace, increased investor and government oversight, and our new national health care model which has led to discussions about the employee value proposition.  Boards, organization leaders, and HR and financial departments sometimes wrestle with consensus.