How to Plan for Revenue Success
Hosted by Stephen Hurrell, VP & Research Director at Ventana Research
It’s no secret that sales leaders continue to face challenges in hitting their revenue targets. Underpinning this statement are three key trends:
- organizations of all types experience sales pressure from increased competition
- buyers today are better-informed and have the ability to do extensive preliminary research before engaging with vendors
- the typical buying process involves more people than ever before.
In this exclusive video, Stephen Hurrell, VP & Research Director, Office of Revenue at Ventana Research, discusses these trends and explores how building an alignment across revenue teams is possible with established revenue planning in place.
00:00:15It's no secret that sales leaders continue to face challenges in hitting their revenue targets. This is due to many complex factors, but three trends are key. First, organizations of all types are seeing sales pressure from increased competition. Second, today's buyers are better informed and have the ability to do extensive preliminary research before engaging with vendors. And third, there are just overall more people involved in a typical buying process.
00:00:41Sales leaders and operations teams have a variety of levers available to mitigate these obstacles and improve the chances of hitting revenue targets. These include ensuring that territories, quotas, and incentive schemes all align with company plans while also maintaining focus on metrics and analytics to provide a continuous stream of signals that give leaders visibility into what is working and what is not. This process and set of activities are designed to position the sales team for success in hitting overall company targets.
00:01:13The approach is referred to as Sales Performance Management, or SPM. SPM is a crucial business activity, supported by technology, for enabling sales targets to be linked to overall organizational objectives. Achievement is through a series of activities, including ensuring that territories are balanced across the sales teams, that quotas are attainable, and that compensation plans align the sales team with overall company revenue targets.
00:01:40Before embarking on understanding whether an SPM approach is appropriate for your organization, there are some key questions that should be considered to ensure that the desired outcome is achieved.
00:01:51Why should an organization pursue a coordinated Sales Performance Management approach? What problems does SPM address? And how do modern SPM platforms support more comprehensive selling behaviors across the organization?
00:02:05First, let's talk about some of the challenges that you may encounter to optimizing today's sales performance. Properly aligning compensation is a key outcome, but sales teams are typically incentivized in ways that differ from other employee compensation approaches. It is their unique attributes that need to be supported for this to become a reality.
00:02:26Compensation for sales teams is, at its core, inherently variable; weighted towards commissions as part of the overall package. These commissions are computed based on the value of sales made and are often overlaid with rates tiered by quota attainment or other factors. Further complicating computations, there may be multiple team members sharing the compensation opportunity, including product specialists and sales engineers, in which case attainment may add up to more than 100%.
00:02:55In addition, the amounts to be paid out maybe on a delayed schedule based on revenue recognition rules depending on when a product or service is delivered as opposed to being sold. And what's more, in response to changing market conditions, sales teams' incentives are continually being adjusted. This is unlike the compensation structures for the majority of employees where reviews happen only annually.
00:03:20So, the systems and processes that support sales compensation are markedly different from the HR systems required by the rest of the organization. And, typically, these HR systems just aren't set up to handle the compounding nature and variability of sales compensation. These HR systems are also not as responsive as they need to be if they are going to accommodate the inevitable adjustments, reaggregations, and comparisons between different What-If? scenarios.
00:03:48Adding to the dynamic nature of Sales Performance Management, salespeople frequently leave or join, or will move within the organization to different territories. These changes are often driven by competitive pressures or new product introductions, resulting in both reporting hierarchies and rollups needing to be continually revised along with an accompanying adjustment to incentives. Sales Performance Management is best thought of as a process supported by technology that sets up sales teams to maximize the ability to achieve individual targets linked to wider company goals.
00:04:27Optimized quotas, balanced territories, and aligned and tested incentives are the bedrock of a sales team that's positioned for success. But the SPM process isn't a "one and done" standalone exercise performed at the beginning of the fiscal year and then not touched again until the next fiscal. On the contrary, SPM supports adaptability via the continuous refinement of projected sales forecasts which are, in turn, based on a thorough analysis of in-flight deals, and the current pipeline that SPM provides. This type of deeper ongoing analysis, generates more credible sales forecasts and will assist management in identifying gaps between targets and real-world results.
00:05:11And this is where machine learning (or ML) and other advanced analytic techniques (often referred to as AI) can help. They provide supplemental insights regarding opportunities over and above what can be provided by the sales teams themselves. Using both internal and external data, AI can help quantify sales not currently being tracked in the underlying sales support systems and, more importantly, can provide additional guidance to management on tracked opportunities. AI can help inform the management team's view of the status of current opportunities that can be used to either confirm judgment calls or to raise questions about otherwise committed deals.
00:05:53Consider how line managers and operations teams manage individual opportunities using a variety of sales indicators as to whether an opportunity is on or off track. Some typical examples include measuring the level of sales activity such as calls, emails, and schedule meetings; sales stage progression and duration; and the presence of any known competitors. This information, which can be gleaned from an SPM approach, will indicate to leadership which deals need additional help and which can be pulled in from out of time periods. And it can be used to understand when and where new ad hoc incentives should be deployed to align sales behavior with desired outcomes.
00:06:37A new business trend that will have the effect of broadening the scope of SPM is the rapid adoption of the subscription business model by many organizations. This adoption will extend across industries and geographic regions in the coming years and we expect by 2023 at least 1 in 10 organizations will expand SPM to include a broader definition of sales to include additional sources of revenue.
00:07:02A truer picture recognizes that total revenue, commonly referred to as annual recurring revenue, is made up of not only existing contracts that can be renewed but also expansion and upsell to existing customers along with traditional focus on new business from new customers, including other channels such as digital commerce and partners. As well as these additional types of revenue should unify into a more holistic approach to manage revenue performance.
00:07:28As additional teams and departments become more directly linked to revenue generating activities, their compensation will increasingly be linked in part to revenue targets and quotas. The techniques and functionality of SPM are ideally suited to accommodate this broader scope, including customer success and account teams as they are irectly involved in supporting revenue from existing customers.
00:07:54This expanded focus on supporting all aspects of revenue generation and managing revenue-link quotas, territories, and compensation across a broader group of employees is called Revenue Performance Management, or RPM. SPM and RPM are not just of interest to the sales team or the extended groups of support in the broader definition of revenue. Finance and HR departments must be part of this overall transformation of the revenue approach as well. Both at the process level and the technology level.
00:08:22All teams need to be fully integrated in both process and systems, as the definition of sales expands to this broader concept of revenue. As more departments and employees have more of their compensation linked directly to sales and revenue targets, the broader revenue teams strategy to target attainment should also be aligned and linked to company objectives.
00:08:43These integrations should be bidirectional, such that overall organizational objectives and targets can be linked to the sales and revenue teams, and so that any adjustments and revisions flow directly to the finance and HR planning and reporting systems. Similarly, reports, key metrics, analytics, and projections need to be shared across teams to ensure continuous improvement and any course corrections, in response to changing market conditions, need to be coordinated across teams as well.
00:09:12For sales and revenue leaders, whether focused on new business or the broader revenue definition, the keys to success include ensuring sales and revenue teams are appropriately set up to successfully achieve company targets. This is the role of SPM and RPM. As extensions to revenue are developed, new sources of revenue come online and more of the organization's employees become involved in supporting revenue generating activities.
00:09:41It is crucial that a software platform be in place to support today's sales performance and revenue, and that is ready to evolve to support the needs of tomorrow. We recommend that sales, revenue, and operational leaders consider the deployment of an SPM application or a platform that encompasses not only key sales operation functional areas but also territory and quota planning, incentive compensation, pipeline health management, and sales forecasting.
00:10:11Enabling the organization to work together towards improved revenue performance is the key to success in our current business environment. This is Stephen Hurrell for Ventana Research. Thanks for watching.