Sales Performance Optimization 2006 Survey Results and Analysis

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Sales Performance Optimization -

2006 Survey Results and Analysis

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Sales Mastery, a Novel

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The Chief Sales Officer’s Guide to

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The Information Technology Challenge

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The Sales & Marketing Excellence Challenge –

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Sales Performance Optimization -

2006 Survey Results and Analysis

J

IM

D

ICKIE

B

ARRY

T

RAILER

Sales Mastery Press

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Terms & Conditions

Printed in the United States of America. Except as permitted under the United States Copyright Act of 1976, no part of this publication may be produced or distributed in any form or by any means, or stored in a database or retrieval systems, without the prior written permission of the publisher except in the cases of brief quotations embodied in critical articles and reviews. For additional information, contact CSO Insights, 4524 Northfield Court, Boulder, CO 80301, Phone: (303) 530-6930, e-mail: [email protected]. The reader understands that the information and data used in preparation of this report were as accurate as possible at the time of preparation by the publisher. The publisher assumes no responsibility to update the information or publication. The publisher assumes that the readers will use the information contained in this publication for the purpose of informing themselves on the matters which form the subject of this publication. It is sold with the understanding that neither the authors nor those individuals interviewed are engaged in rendering legal, accounting, or other professional service. If legal or other expert advice is required, the services of a competent professional person should be sought. The publisher assumes no responsibility for any use to which the purchaser puts this information.

All views expressed in this report are those of the individuals interviewed and do not necessarily reflect those of the companies or organizations they may be affiliated with, CSO Insights, Insight Technology Group, or Sales Mastery. All trademarks are trademarks of their respective companies.

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Acknowledgements

First, we wish to thank all of the far-sighted industry executives who unselfishly contributed their time and insights to the development of the research database used in the creation of this publication.

Next, we would like to thank the following sales effectiveness experts for their underwriting and thought leadership support for this project: Accenture, OneSource Information Systems, Pragmatech Software, Salesforce.com, and Sales Performance International (SPI).

Finally, we owe a debt of gratitude to many colleagues, mentors, and advisors whose help made this report possible. To list them all would be impossible, but a few deserve special mention: Bob Thompson, Founder and Publisher of CRMGuru.com and Willis Turner, President and CEO of Sales & Marketing Executives International for their support in promoting this year’s project. Finally, we want to thank our editing team led by Dr. Diane Hodges.

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2006 Study Participation Industry Breakdown

Manufacturing 42.4% Services 36.1% Other 21.5%

2006 Sales Performance Optimization Project Overview

The following report represents the summary findings of our twelfth annual survey into identifying and analyzing the challenges that are impacting sales performance today, and more importantly, examining how organizations are leveraging people, process, technology, and knowledge to successfully address those issues.

To collect the data for this study, in partnership with CRMGuru.com and Sales and Marketing Executive International (SMEI), we solicited input from professionals directly involved in the management of their organization’s sales force regarding their sales teams’ performance across 100+ different metrics. In total, 1,275 firms offered to participate in this study.

As in the past, we sought to get study participation across multiple industries so that we could have the ability to analyze selling differences in various marketplaces such as manufacturing high tech, manufacturing non-high tech, financial services, business services, distribution, retail, and so on. Figure 1 highlights the industry mix from the highest level perspective. We received the most participation from manufacturing firms (both high tech and non-high tech), followed by services related organizations (financial, high tech, general business, advertising/PR, etc.), then “other” (including retail, government, non-profits, education, distribution).

Figure 1

In terms of geographic participation, 62.0% of the firms taking part in the study were from North America, 14.4% Europe, 12.2% PacRim, and 11.4% ROW. Regarding company size, 57.2% of the companies employed less than 50 salespeople, 21.2% employed 50 – 250 salespeople, and 21.6% had sales organizations of >250 reps.

To support the data gathering process, we continued to utilize a web-based survey approach for this research project. The candidates invited to take part in this study were initially prescreened based on their job function. These executives were then e-mailed an invitation to take part in the

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stop to get more information or had a time constraint. Survey questions focused on obtaining feedback on sales performance metrics in relationship to six key areas:

! Sales Force Demographics: Number of salespeople, percentage of sales reps making quota, average tenure of salespeople, percentage of revenues from various sales sources (field sales, telesales, channel, OEM), ratio of sales reps to sales support personnel and sales managers.

! Sell Cycle Analysis: Average sell cycle length, number of calls required to close a deal, pipeline conversion rates (number of leads resulting in a meeting, meetings resulting in a presentation, presentations and proposals that close), average ultimate win/loss/no decision rates, percentage of deals that close as forecasted.

! Detailed Performance Assessment: Ability to effectively generate leads, qualify prospects, cross-sell/up-sell, sell value/avoid discounting, close business, process orders, create customer loyalty, support channel partners, communicate with sales management and other functional areas within the company.

! Change Analysis: Assessment of the amount of change sales organizations are seeing in competitive activity, their customer’s marketplace, the breadth and complexity of the product lines they sell, amount of new sales rep hiring, etc. In addition, we are assessing the ability to keep pace with those changes.

! Utilization and Impact of Sales Methodology: Percentage of firms using a formal sales methodology, their adherence to that methodology, analysis of sales organizations that develop their own versus license a commercially available methodology, analysis of which commercial offerings they used, and the overall impact it is having on their sales performance.

! Utilization and Impact of CRM Technology: Review of what percentage of organizations have evaluated/implemented a Customer Relationship Management (CRM) system, comparison of licensing a commercially available system versus building the application in-house, analysis of the impact CRM is having on a sales force’s ability to sell, and usage of outside resources to implement CRM systems.

The following report summarizes the input we received from the participating firms for each of these areas. To help put the data into perspective in terms of potential relevance to your sales organization, we recommend that you take the survey either prior to or after reviewing this report. Using this approach, you will be able to compare your company’s performance to other sales forces and determine where it excels, equals, or lags behind your peers. You will also better understand the strengths that can be more fully leveraged and determine what weaknesses to address.

If you are interested in taking the survey online, simply email [email protected], and we will send you a link with instructions. By choosing this option, you will also receive all the mini-studies we publish this year at no additional charge.

We hope the information contained in this report will help you more effectively chart the course for your own sales effectiveness efforts. While we believe the issues raised have broad applicability, we encourage you only to use this information as the basis for brainstorming and goal planning sessions for identifying and prioritizing the operational challenges your organization faces. Everyone can benefit from understanding what strategies and tactics other companies are using, but in the end, you must implement solutions that fit your specific business needs and not those of other firms.

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If you would like to obtain a more focused analysis of the data or discuss in depth some of the best practices we surfaced this year for dealing with current sales effectiveness challenges, please contact:

Jim Dickie, Partner CSO Insights (303) 530-6930

[email protected] Barry Trailer, Partner CSO Insights (415) 924-3500

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Other Decrease Discounting Reduce Administrative Burden Improve Communications Improve Team Selling Increase Channel Sales Effectiveness Improve Margins Reduce Sell Cycle Time Improve Customer Loyalty/Satisfaction Increase Market Share Increase Sales Effectiveness Increase Revenues

2006 Top Three Business Objectives for Sales

Executive Summary

In numerous boardroom discussions we were invited to sit in on this past year, we have seen that optimizing sales performance is now a topic that is top-of-mind - not just to Chief Sales Officers (CSOs), but to the rest of the executive management team as well. Companies across all industries are experiencing major shifts in how customers are purchasing products and services and are rapidly trying to maximize their sales effectiveness to keep pace with those changes. One major trend we heard from several CSOs was that their client’s “buying cycle” was evolving. With so much information available via the Internet, the buying process can start long before the sales process as prospects are able to access product facts, pricing, reviews, existing customer feedback, etc. without ever talking to a salesperson. And when sales reps do get involved in the evaluation process, they are often finding themselves faced with convincing more stakeholders that their offering is the best fit to customer needs (as compared to the competition), and that the value is high enough to justify making the purchase now.

The following report is designed to help executives more clearly understand the current world of sales from two perspectives. The first is the “what” of selling. Here we focus in on assessing the objectives sales organizations are trying to achieve. The second view looks at the “how” of selling - analyzing the strategies and tactics CSOs are implementing to achieve their goals. The study results and analysis are based on input we received from 1,275 companies worldwide.

Looking first at the “what” of selling today at the highest level, we asked the firms participating in the 2006 study to identify the top three objectives they had for their sales operations for the coming year. It probably comes as no surprise to most executives that “increasing revenues” is the top priority, as seen in Figure 2. What is interesting to note is the jump in the number of sales executives who are focused on that objective (68% seen below compared to 58% reported last year).

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But getting more cash in the register is not the only challenge CSOs face. Looking further at the graphic, we see other issues that need to be dealt with: increasing market share, building loyalty within the customer base, avoiding erosions in margins, improving sales productivity, effectively leveraging alternative sales channels, streamlining cross-functional communications, etc.

Add these on top of the ever-increasing revenue expectations being placed on the shoulders of sales forces, and you have the basis for many sleepless nights as CSOs and their sales management teams struggle to figure out what changes to make in how they sell.

In accessing the “how” of optimizing sales performance, you will find we investigated over 100 metrics related to sales effectiveness. In looking at these aspects of selling from the highest level, we see that companies have started to make major investments in their sales organizations in four key areas:

! People: The rate of “net-new” hiring is increasing, in some cases dramatically; as the majority of companies are including expanding the number of people selling as part of their plans to hit their new revenue and growth targets. In addition, as you will see in the report details, some firms are seeing the significant advantages associated with minimizing sales rep turnover (both voluntary and involuntary). These organizations are changing compensation plans, restructuring support services, providing more tools, etc. as a means to make people successful, and keep them onboard longer.

! Process: The adoption of more formalized approaches to selling is increasing noticeably and with it is the investment firms are making in training to optimize selling skills, increase product knowledge, improve competitiveness, and enhance customer relationships. Training for sales managers to improve their coaching effectiveness, communications skills, forecasting ability, etc., is also on the rise. Throughout the report you will find examples of the impact process optimization can have on performance.

! Technology: A number of advances have taken place in the area of Customer Relationship Management (CRM) software. Existing users of these applications are reporting that these applications are easier to install and manage, and that end user adoption rates are improving. Based on these trends, we are seeing more firms are providing their salespeople with access to CRM systems as part of their strategy to help them sell more efficiently and effectively.

! Knowledge: The final area we are seeing increased investment in is providing salespeople with access to the information and insights they need to sell more effectively. This is taking on a couple of different forms. The first is optimizing external information access. This includes providing salespeople with subscriptions to outside news services or providing them tools to help automatically surf the web for information on customers, competitors, the marketplace, etc. The second is mining internal information contained in information systems or less structured best practices gathering and sharing.

Our review of hundreds of sales performance improvement initiatives shows that investments in each of the above areas can hold great promise. Our performance benchmarking reviews surfaced examples of companies improving revenues per rep by 42%, shortening the sell cycle by 27%, improving lead generation results by a mind-boggling 300%, increasing cross-selling and up-selling success by over 110%, decreasing sales rep turnover by half, decreasing the amount of time required to get a new rep fully productive from seven months down to less than four, and much more.

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But not all investments generate these levels of results. As you will see in this study, optimizing sales performance is not just an issue of spending more on supporting sales but spending wisely as well. For each success story we also found examples where funds spent yielded minimal or no results at all.

Throughout the remainder of this report, in addition to reviewing the data findings, we will share strategies and tactics other firms have employed to effectively leverage people, process, technology, and knowledge to optimize the performance of their sales teams. We encourage you to leverage these insights as you formulate your plans to maximize the effectiveness of your sales force this year and beyond.

Should you have any questions on any of the study findings or if you like would like to know more about the best practices your peers are implementing to effectively deal with the issues surfaced in this report, please feel free to contact us directly.

Jim Dickie, Partner CSO Insights (303) 530-6930

[email protected] Barry Trailer, Partner CSO Insights (415) 924-3500

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General Sales Force Demographics

This section looks at a number of metrics related to the sales force make-up: including the size of the sales team, how they are organized, their level of experience, where they work, how they spend their time, etc.

• Percentage of Sales Force Achieving Quota... 12

• Percentage of Company Revenues by Sales Channel Type... 14

• Percentage of Company Revenues by Customer Type ... 16

• Primary Customer Sales Focus ... 18

• Position in the Marketplace... 20

• Size of Average Annual Quota ... 22

• Sales Rep Variable Compensation Package Breakdown... 24

• Percentage of Inside vs. Outside Reps... 26

• Primary Sales Rep Work Location ... 28

• Tenure Breakdown of Sales Force... 30

• Average Years of Industry/Sales Experience per Sales Rep ... 32

• Planned Sales Force Size Changes Over the Next 12 Months... 34

• Current Annual Sales Rep Turnover Rates... 36

• Experience Profile of New Reps Hired... 38

• Salesperson Ramp-up Period ... 40

• Sales Rep Time Allocation ... 42

• Sales Rep to Sales Support Personnel Ratio ... 44

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Sales Rep Quota Achievement

Met or Exceed Quota 59.1% Under Quota 40.9%

Key Findings Observations ! Quota attainment

percentage is up for second year in a row, albeit marginally. ! Real improvements in performance higher than perceived. ! Ongoing debate over working “harder” or “smarter.”

For us, the litmus test for sales performance is the percentage of salespeople making quota. In the heydays of the late 90’s, this number approached 70%, and in selected industries the number was in the low 80% range.

Then the economic downturn hit, and this metric headed south for three straight years, bottoming out at 49.2% in our 2004 report. After bouncing back to 58.2% last year, we see another small gain in the 2006 study. However, this 59.1% number may actually be a more impressive accomplishment when one considers another factor. As you will see on page 22, quotas went up significantly for 2005, so the fact that the percentage of salespeople making quota held steady is actually a positive trend.

So there are slightly more reps hitting, in some cases, much higher quotas. The question this begs (and one we will explore from a number of different angles throughout the remainder of the report) is what caused this improvement in performance? Are salespeople really

working smarter, and are they executing steps in the sales process more effectively? Or, is it the case that they are working harder and more hours to accomplish more?

The answer this year is – some of both. As you will see in the

Performance Assessment section, the ratings for how salespeople are performing specific sales tactics are garnering higher ratings than in the past few years. So, they “feel” they are working more effectively.

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However, the supporting performance metrics in Section 2 (conversion rates of leads to first calls, calls to presentations, presentations to sales, win rate of forecasted deals, etc.) don’t show much improvement from the past year.

Based on this apparent paradox (feeling as if they are doing things more effectively but lacking the performance data to back up that assumption), we will be conducting best practices reviews to develop case studies on exactly “how” companies are producing world-class results. To ensure you receive these updates, send your current e-mail address to [email protected].

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Revenues Per Sales Channel Type

Telesales 13.8% Channel Sales 14.0% Other 2.7% Direct/Field Rep Sales 69.4%

Key Findings Observations ! Reliance on direct

field selling still the key for most firms.

! Telesales still a key part of many firms’ strategies, even with tighter governmental regulations.

! Channel seen as a way to augment direct efforts, and in some cases, replace them.

We modified a metric we began measuring last year to focus on

quantifying the types of revenues firms are generating through the efforts of their own salespeople (both telesales and direct) and from channel partner sales reps. Above, we see that sales produced from internal employees account for over 83% of the revenues being achieved. The face-to-face contact of a field salesperson meeting with a customer or prospect is still the key method firms are using to promote selling. Still many tactics during the sales process are being executed remotely (e.g., conference calls/web-meetings, on-line demos, computer-based training courses, information sharing via sales portals, etc.).

In this study and in two additional major efforts we conducted on target marketing and telesales/contact center effectiveness, we found that while firms are concerned with adhering to the new governmental regulations regarding telemarketing and telesales, they are planning to rely on these communications methods as a key part of their overall go-to-market strategy.

The key to making this work effectively for firms that use both selling models is to improve the communications between sales team members. As you will see in Section 3, this is occurring more regularly.

Effectively leveraging channel reps remains an area of interest for many sales organizations. This is seen as a cost effective method for handling certain sized deals or servicing customers in geographies where the parent companies do not have an active presence.

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The challenge though is gaining mindshare of these channel

salespeople. More investments are being made in tools to aid channel reps in conducting key pieces of the sell cycle, (e.g., needs analysis, education, solution configuration, proposal generation, order processing, etc.) as a means to motivate them to sell certain products or services over others.

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Source of Revenues by Customer Type

% New Customers 35.3% % Existing Customers 64.7%

Key Findings Observations ! Reliance on selling to existing customer base is holding steady. ! Improvements being made in cross-selling and up-selling. ! Generating qualified leads is key to acquiring new customers. ! Innovative

projects are being implemented to nurture both customers and prospects.

Last year, we began tracking the percentage of revenue coming from existing and new customers. Not surprisingly, during that economic downturn, relying on generating sales from current clients was a key priority. We were curious to see what would happen going forward. Looking at the numbers in the above chart, we find that purchases being made by existing customers are still accounting for approximately two-thirds of the sales dollars (essentially flat from last year).

As you will see in Section 3, many companies are making noticeable improvements in their ability to successfully rollout new offerings, cross-sell and up-cross-sell, and improve customer loyalty, all of which are helping companies maximize sales with current customers.

We may well see the pendulum start to shift this year with increased investments in targeted marketing programs (e.g., direct mail, e-mail, web-based marketing, etc.) being reported by more companies. One of the issues these programs are being designed to address is to assist salespeople who have previously generated most of their own leads. A concept that seems to be generating interest is that of “lead

incubation.” Marketing campaigns often generate interest that doesn’t necessarily turn into action. By that we mean the prospect expresses a desire to know more about a product or service but is not motivated to take a formal look at the offering. In those cases, you want a formalized follow-up communications process that leverages the insights gained regarding their level of interest from the response to the initial campaign and, to keep your company and product top of mind so that when the

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client is ready to look, they remember you.

A technology firm shared that when they implemented their automated follow-up process program, they more than doubled the ROI for a marketing campaign. They nurtured the leads that were “interested/but not ready” and turned C leads into Bs and B leads into As.

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Primary Sales Focus

Primarily B2B 74.4% Primarily B2C 8.4% Blended B2B and B2C 17.3%

Key Findings Observations ! Some key

challenges encountered by B2B-focused firms differ from B2C. ! B2C’s top goal is sales effectiveness versus revenues. ! B2B making more investments in tools to support selling. ! Some commonality exists regarding issues.

After beginning to differentiate firms by the type of focus they have (primarily business-to-business (B2B), primarily business-to-consumer (B2C), or a blended approach such as a bank offering both retail and commercial lending offerings), we began seeing that the challenges faced and the solutions to those issues could be very different.

One trend evidenced in B2C is the desire to optimize the speed of selling – the goal is often to complete the sales process in a timely fashion to avoid having the cost of sale erode the margins. Also reported are turnover rates higher than B2B firms. As a result, getting new salespeople fully productive as soon as possible is of keen interest.

Interesting is that B2C firms cited “increasing sales effectiveness” as their top goal for 2006 as opposed to “revenues” as seen on page 5 for the study group as a whole.

B2B firms tend to be looking at more complexity during the sales

process. They are often selling to multiple players who have influence on the final decision. Team selling is more prevalent, so they need to communicate with and manage the actions of players in other geographies or functional areas of their company.

To accomplish this, B2B organizations make more investments in sales skills training and better leverage technology to support execution of the sales tactics and communications regarding the status of the opportunity.

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There are some areas of commonality that still exist. Building customer loyalty, maximizing margins, and effectively differentiating themselves in the marketplace versus the competition are shared challenges between the two groups.

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Position in the Marketplace

Dominant Player 16.4% One of the Lead Players 49.6% One of Many Players 23.2% New Player (Start-up firm) 10.9%

Key Findings Observations ! Start-ups encountering the biggest challenges related to achieving quota. ! On the other hand, “it is good to be King.”

! The bigger you are, the more “religion” you have.

! Options for smaller firms to provide tools for their teams are increasing.

As we began to document last year, where you are in the pecking order in your market space can have a significant impact on what challenges you need to contend with. For example, start-ups reported the lowest ratings for percentage of salespeople making quota, with attainment ratings in the 47% range.

One factor that may be influencing this performance is that start-ups report higher “competitive loss” and “no decision” rates than the firms in the other categories. In addition to facing a product challenge compared to their competitors, they may also be facing a concern regarding their longevity.

On the other hand, when we look at companies who are the dominant players in their marketplace, we find that benefits come to he who is King. For example, 67% of salespeople achieve quota.

Noticeably higher for these players are their “win rates” for forecasted deals and the higher percentage of revenues they receive from their existing customer base.

One of the items of interest is how dominant players sell. They adopt a more structured approach to selling than other firms, although they do not appear to spend any more on training than their counterparts. The percentage of firms that have implemented CRM tools did not vary widely between categories. With the increase in the quantity of on-demand options available, small and medium-sized businesses can now

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cost-effectively provide these tools to their salespeople.

In looking at the end user adoption rates across classes of users, smaller firms tend to have a higher rate of system usage than larger players. We will explore the factors impacting system usage in the Customer

Relationship Management (CRM) section of the report. Notes:

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Annual Quota Per Sales Rep

<$500K 28.9% $500K - $1M 27.8% $1M - $2M 25.0% >$2M 18.3%

Key Findings Observations ! Average quotas

rose significantly this past year, and reps kept pace.

! Lower quotas directionally related to smaller deal sizes and sell cycle lengths.

! Profile of reps changes as deal size increases.

! Reliance on customer base for revenues

directionally related to quota size.

As part of the 2005 study, we started tracking the average quotas being assigned to salespeople. In looking at the new figures compared to those of a year ago, there is a noticeable jump in the revenue expectations being placed on reps. More than 43.3% of the firms report quotas above $1M. This compares to 28.6% last year.

The positive news is that the percentage of salespeople making quota was not negatively impacted by this move as seen on page 12. Reps were able to adjust to the increased numbers they were expected to put on the board.

In looking at performance related to deal size, some trends surface. First, the lower the quota, the lower the average deal size. For example, 50% of the firms with quotas <$500,000 stated that their average deal size was <$10,000. This compares to the 24.2% figure seen from the study group as a whole. Directionally related to that, the length of the sell cycles for reps carrying lower quotas is lower.

Another tendency is that as the quota size changes so does the profile of the salesperson. Considering firms with average quotas of $2M or more, they are more likely to employ experienced talent. Firms in this category report that 68.6% of the salespeople they hire have previous selling experience in their industry and an average of over 21 years of experience in sales overall.

As part of the strategy to make these higher quotas, the percentage of revenues generated from the existing customer base increase

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directionally with the size of the revenue target salespeople are expected to hit.

Of interest to several of our advisors was the apparent lack of impact that quota size has on overall win rates. Comparing the performance of sales reps based on their quota size, the win rate percentages are fairly consistently hovering in the 50% range.

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Variable Component of Rep Pay Package

0 - 15% 15.9% 16 - 25% 13.2% 26 - 40% 20.4% 40 - 60% 27.3% 60%+ 23.3%

Key Findings Observations ! Revised Metric: Starting to breakdown the percentage of variable vs. base pay in more detail. ! Wide range in philosophies regarding how to structure pay plans. ! Comparing the opposite ends of the spectrum, there is no noticeable difference is quota attainment. ! There are variances in voluntary turnover rates.

Last year we started to track what percentage of a salesperson’s compensation package was variable versus base pay. The numbers though were reported at an aggregate level (56.4% base and 43.6% variable). Based on requests from our research clients, we changed the question to surface the ranges that firms are using when determining the extent to which a pay package should be variable versus base.

Above, we see that there is a wide range of opinions on the topic. There is roughly a 50/50 split at the 40% pay target, with half of the

organizations targeting a variable compensation rate above that 40% rate and the other half falling below.

In talking to CSOs, we find different philosophies. One executive who has essentially all of his reps’ pay comprised of commissions and bonuses stated that his view was that you “feed eagles and starve pigeons.” You want to reward the superstars to stay and motivate the underperformers to get their act together or move on.

On the opposite end of the spectrum were CSOs who feel that variable can motivate reps to do things that are not in the best interest of the client if the plans are not well designed.

We started to do some analysis of what, if any, variable pay percentages have on quota attainment. Looking at the opposite ends of the variable pay curve; 60% plus and 15% or less, we found that the percentage of reps making quota was virtually identical – 61% in both cases.

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One trend we will explore later this year is the turnover rate in sales by percentage of their pay package – that is base versus variable. Again, looking at the opposite ends of the spectrum, the voluntary turnover rates for firms with 60% or more of their packages comprised of variable pay were 18% lower than firms with little or no variable pay component to their plans.

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Inside vs. Outside Reps

Inside (Telesales) Reps 25.5% Outside (Direct/Field) Reps 74.5%

Key Findings Observations ! Noticeable swing

back to reliance on direct/field sales reps to sell.

! Telesales still playing a key role, not being impacted significantly by regulatory changes. ! Quota achievement numbers do not show advantage in one approach over the other.

! Turnover is higher in predominantly telesales firms.

! CRM adoption rate higher for telesales.

Comparing the percentage of outside (direct/field) sales reps from last year to this, we see that the pendulum continues to swing toward relying on field salespeople to carry most of the selling burden (74.5% of the sales force seen above compared to 64.1% in the 2005 study and 51.1% in 2004).

Again, outsourcing is contributing to part of this shift. Leveraging onshore and offshore outside telesales firms to handle peak sales needs,

providing coverage to smaller or geographically remote accounts, handling sales of products nearing the end of their life cycle more cost effectively, etc. are being considered by an increased number of firms. This is reducing the number of employees working inside the company on those tasks.

In this study, the 2005 Target Marketing, and 2005 Telesales effectiveness research reports, we see evidence that governmental regulations are not negatively impacting the level of interest in using telesales as a means for working with customers. There are, however, more net new positions being given to the field sales side of the house when it comes to additional hiring.

In looking at percentages of inside and outside salespeople making quota, the numbers are nearly identical; hovering in at the 58-59% rate. Both sets of sales reps face challenges in meeting their numbers. Also, win rates are not statistically different between these two groups. Turnover rates for sales organizations that rely more heavily on tele-salespeople are noticeably higher than firms focusing on direct sales

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teams. For example, the overall turnover rate (voluntary and involuntary rep turnover) for firms with >75% of their sales force made up of tele-salespeople is 48.2% compared to an overall rate of 32.8 % for sales organizations with <25% of the people selling over the phone.

The impact of telesales reps leaving appears to be less than when losing a direct rep, as 63.3% of the predominantly telesales organizations have end user CRM adoption rates of >90% compared to only 27.6% of the predominantly direct firms. Based on this trend, new telesales reps would have access to more details on their accounts through the CRM systems than new outside reps would.

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Primary Sales Rep Work Location

Home Office 33.0% Customer Location 2.5% Other 3.4% Company Office 61.1%

Key Findings Observations ! Breakdown of

where

salespeople work is holding steady.

! Where reps work is not impacting performance. ! Better communications with sales management/ other functional areas reported for company office-based reps. ! Seeing more blended approaches with reps working remotely part of the time.

After three years of increases in the percentage of salespeople working remotely compared to working in a company office, the trend seems to be leveling off this year. Part of this may be attributable to less pressure being placed on CSOs to cut costs and more focus on increasing revenues.

In comparing the performance levels of reps (e.g., percentage of reps making quota, average win rate, amount of turnover, etc.), there are no major differences relative to the location of the salesperson’s office. However, communications between salespeople and their managers or sales and other functional areas are directionally better when reps work out of company offices versus their homes. To minimize the impact, more companies are investing in collaboration tools.

Use of software to support web-based meetings, training classes, facilitating communications on the status of deals through CRM, etc. continues to rise. Adoption rates of technology by home office-based salespeople are higher than those of sales reps working in company locations.

One interesting use of technology we observed was a software system to instantly allow people to connect with each other. The system tracks who is online and the method they are using to communicate. For example, let’s say a sales rep needs to contact a legal specialist to work out some terms in a contract. The system checks to see who is online that has that type of expertise. Once it locates someone who matches

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the desired profile, it issues an invitation to join a virtual meeting taking into account the best available way to facilitate that discussion (e.g., video conferencing, web meetings, IM chat, etc.).

Using this technology, the firm found that the system increased the productivity and responsiveness of its salespeople by getting them directly in touch with those who could help with the task at hand. Based on feedback from several of our research clients that have adopted a blended approach to work (reps work in both company and home locations throughout the week), we will be modifying our survey tool next year to take these cases into consideration.

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Tenure Breakdown of Sales Force

<1 Year 19.7% 1-2 Years 21.8% 2-4 Years 21.2% 4+ Years 37.2%

Key Findings Observations ! Third year in a row, tenure of sales force is increasing. ! Keeping experienced talent is key as ramp-up times are increasing. ! Seeing firms become more creative in viewing sales as a profession. ! Increased net-new hiring could create

competition to keep the best players.

When companies were experiencing unprecedented growth in the late 90’s, we witnessed a decline in the average tenure rate of salespeople. Experienced reps were constantly bombarded by offers to switch jobs, and they often did.

For the third year in a row, the tenure numbers for sales teams went up, from 31.6% of the sales force employed by their current company for 4+ years in the 2004 study, to 35.1% in 2005, to 37.2% seen above. Retaining experienced sales talent has clear advantages. In looking at the study data, the percentage of reps making quota increases

directionally with the level of tenure of the sales team. The average deal sizes trend higher as well.

This year, we benchmarked several projects in which companies were taking a proactive role to keep their best talent. For example, a

publishing firm has a program that allows the top 10% of their sales reps (determined by the previous year’s performance) to hire their own admin person for the coming year and bill the firm for the expense.

Not only is this making the best players more productive, the voluntary turnover rate of these sales stars fell to 0%.

A software firm is taking on the challenge of turning sales into a true career life cycle profession. They are setting up a job structure that allows salespeople to remain as individual contributors throughout their time with the company, as opposed to going into management to have

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their career path progress.

A third concept is the idea of not just motivating salespeople to stay in their jobs, but their sales support staff as well. During the course of conducting customer satisfaction reviews, a technology firm found the ratings from clients were often directly related to the tenure of technical support people working with that account.

They implemented a financial incentive system to reward tech reps for continuing to work with the clients with which they have established relationships as opposed to seeking other jobs in the company such a development, technical marketing, training, etc.

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7.8 16.9 0 2 4 6 8 10 12 14 16 18

Years in Industry Years in Sales

Average Experience Level of Reps

Key Findings Observations ! Seeing firms

seeking to hire reps who have more experience in selling. ! Performance improves as experience increases. ! Turnover rates decrease as experience increases.

Again, during the boom times of the 90’s, the ability to hire salespeople with extensive sales experience became a daunting task as demand exceeded supply. We started tracking the average tenure make-up of the sales force last year, and the experience levels continue to trend up. More experienced players often come with a higher price tag, and sales executives (and CFOs) may question whether they are worth the price. While the numbers vary from industry to industry, at the aggregated data level the performance levels (as measured by metrics including

percentage of salespeople making quota, the ability of reps to sell value and avoid discounting, and overall win rates of forecasted deals) directionally improve as the experience levels of the sales team increase.

An interesting corollary is that the turnover rates tend to decrease based on the experience levels of the salespeople. This is true for both

voluntary and involuntary rates, as experienced reps change jobs less as their careers progress. If they survived the early learning years of selling, they are less likely to make the errors that cause their performance levels to fall to levels where they are let go.

As you will see in the next three graphs, companies view the addition of net new salespeople as a key part of their growth plans, and the rate of new hiring is increasing.

In addition, the reps being targeted are those who have previous selling experience in their industry. This should serve as a word of warning to

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CSOs to ensure that they are putting the programs and policies in place to keep experienced reps on board.

If you calculate the impact on your performance caused by losing an experienced revenue producer and then waiting for his or her

replacement to ramp-up to full productivity, you will see that an increase in turnover can severely impact your ability to meet your revenue goals. Notes:

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Planned Changes in Sales Force Size - 2006

Decrease in size

2.4% _{Remain the same} 26.6% Increase 21-30% 7.0% Increase by >30% 11.3% Increase by 11-20% 20.0% Increase by 10% or less 34%

Key Findings Observations ! There will be a significant jump in the number of salespeople hired in 2006. ! Certain segments of the marketplace planning very aggressive growth. ! Firms looking to optimize the hiring process.

After seeing firms pull back on aggressively adding net new staff in sales in 2002 and 2003, we see the continuation of a three-year trend to “put more feet on the street” as a key part of a CSO’s strategy to achieve growth objectives.

Looking at the numbers above, some companies are planning significant growth in their sales organizations, as nearly 1 in 5 firms plan to increase the size of its sales organization by 21% or more.

In further analyzing the metric, the growth trend is consistent for both B2B and B2C firms. There are differences when looking at the projected hiring plans by company type. Industries such as high tech hardware and software report plans for the highest level of growth in their sales teams. The hiring process for salespeople is one that many companies would like to improve. To ensure they make a good hire, some companies are employing techniques such as administering psychographic tests of potential candidates, contracting with recruiting firms specializing in assessing sales talent, increasing the extent of the interviewing process, etc.

One tactic used by a financial services firm was found to be effective in helping to optimize the hiring process. In the past, this firm went through a process of reviewing hundreds of résumés, inviting in potential

candidates, involving managers and reps in the interview process, and then performing detailed due diligence on the best candidates.

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The head of sales noted that the flaw in this approach is that résumés can be very misleading. Often, he found himself making a decision within 5 minutes of meeting candidates that were not going to be a fit, even though they looked great on paper.

Their answer to this challenge was simple, cheap, and effective. After a first pass at the various résumés, they invited the candidates they were interested in to take part in a virtual interview. The potential recruits were sent a DVD containing 18 questions and a web camera to plug into their PC. When ready, the interviewee started the program on the DVD which asked the questions, and the responses were captured and uploaded to a website for later review.

By utilizing this service, the hiring managers were able to see and hear the candidates as opposed to just reading their résumés. The service also allowed them to compare how individuals answered specific questions. They found this change in their process greatly improved the quality of the candidates they invited for face-to-face interviews.

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20.4% 17.8% 0% 5% 10% 15% 20% 25%

Voluntary Turnover Involuntary Turnover

Sales Force Turnover Rates

Key Findings Observations ! On a positive

note, involuntary turnover held steady from last year and

voluntary turnover dropped.

! Minimizing turnover can have significant impact on sales

performance.

! On a cautionary note, competition for talent may increase turnover numbers this year.

Last year, we saw overall turnover rates in sales jump to nearly 50%. The biggest increase came in the area where companies can least afford it – voluntary turnover (defined as cases where a sales rep you want to keep decides to leave the company). That number peaked last year at 31.6%.

Part of that jump was the result of a pent-up desire on the part of some reps to change jobs. In the 2002-2004 time frame, hiring rates slowed dramatically, so many salespeople stayed in their current positions even though they were unhappy with their jobs. When hiring started to pick up two years ago, these people found opportunities that were more to their liking, and the voluntary turnover rates jumped accordingly.

As can be seen above, the overall turnover rate dropped to 38.2% during the past year with voluntary turnover now at 20.4%.

We were actually surprised by this trend. Last year, many companies stated they planned to increase the size of the sales forces, so we wondered if enough good talent was available to meet the demand or if companies would recruit good performers from other firms. That did not appear to happen.

While lower turnover rates may cause CSOs to breathe a sigh of relief, the fact that 1 in 5 of the solid performers is choosing to leave each year should still be a major cause of concern.

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One CSO at a software firm made the observation that most companies have no idea as to the cost of losing a proven sales rep. He had his sales operations director go through an exercise of determining what the revenue contributions were for experienced reps compared to new reps. He also had him determine other financial impacts such as the average length of time a territory was open after a rep quit, the costs associated with recruiting and training a new hire, the wash out rate for

replacements, etc.

When all the numbers were added together, the total financial impact came to $1.2M each time an experienced rep quit. They further determined that if they were able to decrease their voluntary turnover rates by one-third and retain those dollars versus taking a financial hit, that all other things being equal their stock price should rise 7%. At the risk of crying wolf twice in a row, we feel the need to put out the warning that if companies hire at the rates seen on page 34, and if the majority of the people they hire are reps with experience selling in their industry as seen on the next page, voluntary turnover has to go up. Putting plans in place to minimize this may be time and money well spent.

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Experience Profile of New Reps Hired

Non-Selling Professionals 12.8% Selling Outside Industry 25.5% % Other 5.3% Selling Within Industry 56.5%

Key Findings Observations ! New Metric:

Experienced sales talent is first choice. ! Better if reps have experience in specific industry. ! Developing new talent is attractive to certain industries. ! More universities stepping in to train reps.

Whether adding net new reps or filling spots caused by turnover, companies predominately want to hire experienced salespeople. In looking at the performance metrics, as the years of sales experience go up, so, too, do factors such as the percentage of sales reps making quota, ability to sell value and avoid discounting, forecast accuracy, and ability to build customer loyalty.

In addition, other metrics such as length of the sell cycle, the number of calls required to close a deal, and voluntary sales rep turnover all decrease as experience levels rise.

Given the choice of hiring someone with general sales experience versus previous experience selling in the company’s specific industry, CSOs by a factor of over 2:1 opt to hire the rep with the most targeted experience.

Of note, however, is that a cursory review of the data does not show any significant performance advantage in hiring industry experienced reps over general sales experienced reps. We will be doing more analysis of this area this year.

Developing sales talent is attractive in certain types of industries such as services. We also found companies looking to hire telesales reps tend to be more open to hiring an inexperienced sales rep. One factor we do not see in these firms is that they invest more in sales training to get these inexperienced reps up to speed when compared to companies who target experienced talent.

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A trend we continue to watch is an increase in the number of universities that offer courses in sales to both undergraduates and postgraduates. There are now five universities offering four-year degree programs in sales and another 30 universities that have sales centers as part of their business schools.

Some of these schools are beginning to track the performance of the students who graduate from their courses or programs and go onto careers in sales. Directionally, we are seeing these salespeople

outperform their peers who have not taken sales courses as part of their academic training.

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New Sales Rep Ramp-up Time

< 3 Months 6.7% 3 - 6 Months 28.0% 7 - 12 Months 36.5% > 1 Year 25.5% Do Not Know 3.4%

Key Findings Observations ! Ramp-up time to full productivity continues to take longer. ! Mentoring resources continue to be harder to find. ! Finding increase use of CRM and Sales Knowledge Management (SKM) resources. ! Unless ramp-up issue is dealt with, high turnover can hit performance hard.

For the fourth year in a row, the rep ramp-up time trend is heading in the wrong direction – it continues to take longer to get a new salesperson up to full productivity. Above, we see that 62% of the firms report their ramp-up period is in excess of seven months (compared to 50% a year ago.) Of that, One in four companies has a ramp-up period of over one year compared to roughly one in five the previous year.

As a general observation, salespeople are being asked to represent more and increasingly complex products for which competitors are more aggressively marketing alternatives for buyers to consider.

And as we will see on pages 44 and 46, reps have fewer support resources to mentor them on how to do this effectively, as the ratio of sales support personnel to sales reps and sales managers to sales reps both continue to widen.

Two areas where additional investments are being made are in Customer Relationship Management (CRM) applications and Sales Knowledge Management (SKM) resources.

As more firms implement CRM systems, and more reps adopt the usage of these programs, insights into customers, the marketplace, past buying trends, etc. are captured. When new salespeople have the ability to tap into that knowledge base, ramp-up times decrease accordingly.

Similarly, giving reps access to SKM tools, either in the form of subscriptions to information mining services, internal best practices

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sharing tools, or internal document management portals, new sales reps become more productive.

A final rising use of technology is collaboration technologies (e.g., web-based meetings, instant messaging chat capabilities, and computer-delivered training). Successes have been documented using each of these approaches.

A metric all organizations should factually determine and rigorously track is their actual sales ramp-up period. A method to determine this is re-constructing the month-by-month revenue contributions of all first year reps for a 12 month period and comparing it to the month-by-month averages of the rest of the sales force. This will determine the true ramp-up curve.

People who have gone through this exercise are frequently shocked as the results are often longer than they think – but the numbers don’t lie. Once you know what your curve really is, you can better determine what levels of investments in people and tools you should make to deal with this ever increasing challenge.

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Sales Rep Time Allocation

Phone Selling 18.9% Admin Tasks/Meetings 15.3% Account Servicing 10.7% Training 6.1% Other 3.0% Face-to-Face Selling 27.3% Prospecting/ Lead Gen 18.8%

Key Findings Observations ! Salespeople still

not being given more time to sell.

! Marketing taking a more active role in lead

generation.

! More time being dedicated to training. ! Concern is how effectively selling time is being used.

After showing signs of improvement the past two years, there seems to be a leveling off again regarding the ability to give salespeople more time to sell.

The above numbers show some improvement in reduced time that reps need to devote to non-selling tasks. For example, after seeing reps spend time generating their own leads, marketing is now picking up more of the heavy lifting in that area.

In this year’s study and the Target Marketing Priorities study we published in the fall of 2005, we are seeing companies increase their spending on direct marketing, digital marketing, and telemarketing campaigns. All of this should start translating into more leads for salespeople, but they are still spending just under one-fifth of their time prospecting for new business.

There is improvement when comparing the time spent on lead

generation, handling account service requests, and administrative tasks, (44.8% cumulative above compared to 49.1% last year).

However, that is not translating into more direct time selling, either face-to-face or over the phone, as this year firms report total selling time of 36.2% cumulative versus 36.9% a year ago.

Where are organizations spending the time that is being freed up? A noticeable increase can be seen in the amount of training provided to salespeople. This is taking the form of sales skills training, product

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training, training on the customers needs, and additional training on competitors and their offerings. While more training can translate into more effective sales calls, companies need to find ways to make more of those calls.

Can this be accomplished? Yes, if resources are dedicated to the problem. A distribution firm increased the amount of time its salespeople spent selling from 18 to 26 hours a week by assessing their workflow and finding ways to automate tasks such as customer correspondence, internal reporting, order processing etc.

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Sales Rep to Sales Support Personnel Ratio

1 to 1 12.1% 2 to 1 20.6% 3 to 1 18.7% 4 to 1 17.6% 5 to 1 10.5% 6+ to 1 20.6%

Key Findings Observations ! Resources being allocated are in a state of flux. ! At highest level review, sales support ratio is not always closely tied to performance. ! Seeing more firms opt to leverage technology to fill sales support gap.

At the request of a number of our research clients, we began to track the ratio of sales reps to sales support personnel last year. The hypothesis that several CSOs proposed was that the economics of sales were causing many companies to cut back on the staffing levels in this area. In comparing the above data to the baseline of a year ago, directionally this appears to be true.

Let’s first look at the low end of the curve. When focusing on the number of firms that have a 1:1 ratio between sales reps and sales support, there is a drop from 15.0% reported in the 2005 study to 12.1% reported by the participants this year.

The trend holds true at the high end of the curve as well. Last year 18.2% of the firms reported rep to support ratios of six or more as compared to 20.6% this year.

The question this trend raises is whether or not the reduction in sales support personnel is a good or bad thing. Based on the review of other metrics in the report, we are seeing that selling is becoming more challenging. Are cut backs in sales support staff making it even more so? An initial review of the data suggests that this may not be true in all circumstances. While we found examples where decreasing access to sales support personnel did result in a decrease in sales performance, we also found examples where it did not.

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The difference between the two sets of results appears to be linked to what other resources salespeople can access to get the help they need. An example of a firm successfully replacing “liveware” with “software” is a manufacturing firm we benchmarked. They did an analysis of the types of issues in which reps requested help and found that many of the calls were related to determining the questions they needed to ask prospects in order to select what products to propose and at what price.

After understanding the majority of the FAQs sales support reps were handling, they developed a system that allowed salespeople to access the answers in real time by tapping into a Q&A knowledge base using a tablet PC. Not only were they able to reduce staff without impacting sales performance, they also found they were able to decrease the average number of calls required to conduct a comprehensive needs analysis from three down to just over one.

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Sales Rep to Sales Manager Ratio

1 to 3 16.7% 4 to 6 29.0% 7 to 9 23.2% 10 to 12 11.2% 13 or more 4.9% Not Applicable 15.1%

Key Findings Observations ! Modest shift in

ratio of sales reps to sales managers to the center of the curve. ! CRM technology making communications between reps and managers easier. ! SKM applications used to share account strategies and best practices.

A second staffing metric we began to re-track last year was the ratio of sales reps to sales managers. Comparing last year’s figures to those we collected in the mid 90’s, we saw an overall increase in the number of salespeople a sales manager is asked to supervise.

Is this a continuing trend? The answer is both “yes” and “no.” If we focus on the low end of the curve where there is a ratio of 1-3 reps per

manager, we find a decrease from 20% last year to 16.7% in this year’s study.

However, looking at the high end of the curve where firms have a ratio of 10 or more reps per manager, the numbers are essentially flat from year to year. More firms seem to be opting for the range of 4-9 reps per manager but not higher.

One factor that appears to be making the job of sales management easier is the continued adoption of CRM technology. As you will see in the CRM section of the report, when we asked firms to identify the benefits they are achieving through the use of CRM systems, the most frequently mentioned advantage was “improved communications between sales reps and sales management.”

In addition, one of the key tasks that reps and managers need to collaborate on is forecast management. Technology is helping as this was the second most frequently mentioned benefit resulting from CRM system usage.

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SKM technology is also proving valuable in helping to improve the effectiveness of sales managers. A billion dollar plus technology firm shared that the key beneficiary of their SKM project was sales managers.

Prior to implementing their SKM system in sales, managers reported spending up to 55% of their time answering sales reps’ questions (e.g., account strategy, product information, insights into competitors, etc.). As opposed to handling all these conversations via the phone, the system was designed so that reps could send the question in via e-mail. The SKM system parsed the question to see if it had been asked before, and if so, forwarded the answer back to the rep without manager

intervention.

Only if the question was unique was it sent by the SKM system to the sales manager. And then, after the manager answered the question, that new answer was integrated into the knowledge base for future reference. Notes:

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Sales Performance Optimization 2006 Survey Results and Analysis

Sales Performance Optimization -

2006 Survey Results and Analysis

Other Publications by Jim Dickie & Barry Trailer

Target Marketing Priorities – Executive Report

Insights into High Tech

Sales and Marketing

Sales Mastery, a Novel

The Chief Sales Officer’s Guide to

Customer Relationship Management

The Information Technology Challenge

The Sales & Marketing Excellence Challenge –

Changing How the Game is Played

Sales Performance Optimization -

2006 Survey Results and Analysis

J

IM

D

ICKIE

B

ARRY

T

RAILER

Acknowledgements

Table of Contents

2006 Study Participation Industry Breakdown

2006 Sales Performance Optimization Project Overview

2006 Top Three Business Objectives for Sales

Executive Summary

General Sales Force Demographics

Sales Rep Quota Achievement

Revenues Per Sales Channel Type

Source of Revenues by Customer Type

Primary Sales Focus

Position in the Marketplace

Annual Quota Per Sales Rep

Variable Component of Rep Pay Package

Inside vs. Outside Reps

Primary Sales Rep Work Location

Tenure Breakdown of Sales Force

Average Experience Level of Reps

Planned Changes in Sales Force Size - 2006

Sales Force Turnover Rates

Experience Profile of New Reps Hired

New Sales Rep Ramp-up Time

Sales Rep Time Allocation

Sales Rep to Sales Support Personnel Ratio

Sales Rep to Sales Manager Ratio