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The Art & Science of Quota Setting The Sales Leadership Forum Reports

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Please contact The Sales Leadership Forum at 770 337 9897 for the full version of this report.

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The Art & Science of Quota Setting

Presented by: The Sales Leadership Forum www.TheSalesLeadershipForum.org Sponsored by: SalesGlobe www.SalesGlobe.com

© The Sales Leadership Forum and SalesGlobe Atlanta, Georgia 2010


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Dear Members of The Sales Leadership Forum:

This report on The Art & Science of Quota Setting provides our members with exclusive insights from our sessions and research. The Sales Leadership Forum is a sales leadership community and sales effectiveness advisory organization that provides its members with exclusive access to senior sales and marketing executives in leading growth companies, actionable research, and best practices consulting. We work with our academic partners from leading business schools and our board of advisors from member companies to provide services that directly address member needs to increase sales productivity and profitable revenue growth. The Sales Leadership Forum provides the following services to member companies: Senior Executive Community. Community and sessions with senior executives in sales, sales operations, human resources, marketing and general management from leading companies across industries. Forum sessions bring executives together for memberdriven discussions on hot topics, access to best practices and advisors, and relationship building. Sessions are held both in-person and via live web. Sales Compensation Community. Community and sessions that include sales, sales operations, human resources and compensation experts. Sessions focus on the in-depth exploration of important issues in sales compensation. Sales Operations Community. Community and sessions that include sales, sales operations, human resources, and compensation executives and experts. Sessions focus on in-depth exploration of important issues in sales operations. Executive Coaching for Management. Sales effectiveness coaching from our leadership team who is experienced in working with organizations across industries in areas that include sales strategy, growth planning, performance management, sales channel management, sales organization design and development, sales productivity improvement, and incentive compensation. Fast Cycle Research. Focused research and surveys on topics of interest to members, or issues for which they need quick input. Match Making. Connections within the member group to confidentially gain information and facilitate discussions on hot questions from members. Consulting and Advisory Services. Project-based consulting services in areas that include sales strategy, market coverage, job design, sales operations management, sales productivity improvement, sales compensation and quotas.

The Sales Leadership Forum

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This report on the art and science of quota setting is based on a session of The Sales Leadership Forum as well as research from The Sales Leadership Forum and SalesGlobe. We hope you find this information valuable. For additional perspectives and answers to questions, please visit www.TheSalesLeadershipForum.org, www.SalesGlobe.com or contact us at (770) 337-9897.


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Table of Contents

Introduction .................................................................................................................... 6 A View from The Sales Leadership Forum: ..................................................................... 12 Expert Panel Discussion ................................................................................................. 15 About The Sales Leadership Forum ................................................................................ 37


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Introduction In this report from The Sales Leadership Forum, we explore the process of quota setting through a discussion led by a panel of sales operations experts as well as research conducted by The Sales Leadership Forum and SalesGlobe. Sales compensation is one of the biggest motivators and drivers of sales performance in an organization, but it is not without obstacles. One of the top challenges we see is actually not a compensation issue, but a quota issue: how to set effective quotas. Successfully setting quotas is part science: part process and numbers-driven. It’s also part art: part human and thought-driven. So what is the right balance between these two, and how can companies continually and effectively set quotas? The Many Wrong Ways to Set Quotas Over 30% of companies do not have quotas ready by the first month of their fiscal year, and some companies often delay several additional months. Sales reps are left to figure out what they are supposed to be doing on their own. Companies assume reps are working toward the same goal they had last year, plus x percent; but reps often claim they don’t know what they are supposed to be doing. Even after quotas have been set and allocated, 50% of companies continue to make adjustments during the year. We hear several recurring questions around quota setting: 1. Should we set quotas on historical performance or market opportunity? Most quotas do not reflect actual market or account opportunity; many quotas actually weaken the sales compensation plan, and many put business performance at risk. 2. Are we actually penalizing our best reps with our quota process? We sometimes put our best reps at a disadvantage with a “performance penalty.” Reps who do well in the organization get rewarded next year with a bigger quota based on the current year’s performance. In future years we may penalize them even further. By continuing to give the highest performing reps the biggest quotas, we increase their goals as their market share increases and their penetration of that market increases; but, over time, their potential untapped market opportunity decreases. 3. Is the issue performance or is it the quota? Often companies will look at quota performance – the number of reps hitting quota – and determine the organization is not doing well in terms of quota setting. This is only part of the story and may be a symptom of a larger sales effectiveness problem. The issue could actually be sales performance. The Sales Leadership Forum

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4. How can we incorporate forward-looking metrics? If looking in the rear view mirror at historic results is putting us at a disadvantage, how can we do a better job of looking ahead? Considering factors such as total market opportunity, account level sales potential, relative growth rates, and rep capability may reveal an answer.

There are many explanations for why companies continue to have issues with quota setting. One reason is company legacy: “We’ve always done it this way over the years, and we’ve never really looked at other ways of doing it.” Another reason is that the organization runs out of time and resources. Consider how much time is put into designing and evaluating the sales compensation plan during the year. If we are on a calendar year fiscal, we might start in August, work up through November and finish designing the compensation plan in December. And then someone will say, “Next week we’re going to set quotas.” People will go off into an obscure, smoke-filled conference room and somehow produce magic numbers. By the time quota-setting comes around, we have exhausted our time and resources, and we don’t have enough of either to properly determine quotas.


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Expert Panel Discussion The Art & Science of Quota Setting Robert Dillon Vice President of North America Sales Strategy and Operations at Yahoo! Angelina Beitia Vice President of Sales Operations at PGi Brett Rogers Director of Sales Operations at Equifax Steve Benford Director of Finance at Iron Mountain

T

he Sales Operations Community conducted a panel discussion with a group of experienced sales operations executives to explore the art and science of quota setting. MARK: Welcome to our discussion on the art and science of quota setting. The topics we’ll cover today are around how quotas work now and approaches our panelists have used to move ahead with better processes for quota setting. We’ll talk about the people side, which is very important because it’s not just about the numbers, it’s about the process and it’s about the people themselves. I’d like to introduce each of our panelists. Angelina Beitia is senior vice president of sales operations at PGi. She was formerly senior vice president of consumer marketing at IDG Publishing, The Sales Leadership Forum

senior director of global marketing at Iomega, and general manager of Clear One. ANGELINA: I have 25 years of various sales and marketing experience. I came to PGi six years ago through an acquisition of a business unit in which I was a general manager. And at the time we were acquired I had built our partner channels here at PGi, and so I went into building that channel out. Then two years ago I moved into a sales operations lead role. So I think between the marketing and understanding how to look at a market and the sales opportunity and then building a sales channel I have some different experience when it comes to applying that to a sales operations role. MARK: Steve Benford is director of finance at Iron Mountain’s Digital division. Steve was also in several senior finance roles at EMC, 3Com, and CVS. He was also was with Booz Allen. Steve

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has a Navy background, like one of our other panelists.

and quota setting or perhaps intelligence and quota setting.

STEVE: Thanks Mark. Thanks for asking me to participate.

BOB: Good afternoon everyone. I’m also very excited to be here. I’m looking forward to learning a lot from various folks here.

I have 20-plus years in the finance world, and am director of finance at Iron Mountain’s digital division where I have responsibility for all business space and finance functions including the annual plan and monthly forecasting. I think I’m a starting point for quota setting. Quota setting usually starts with my team’s assessment of the bookings requirement that we need for the following year. I don’t own quota setting; we work that out with sales ops. Finance plays a key role. I have been engaged with or involved in quota setting and field planning my entire career as I’ve supported different companies – as Mark mentioned EMC, 3Com, Booz Allen. Interesting perspective, I think, from the finance world, but I do acknowledge the ownership of quota setting by sales operations. MARK: Bob Dillon is vice president of sales operations with Yahoo. Bob has had several roles with Yahoo including head of advertising/product marketing for North America, and vice president of advertising marketplace operations for North America. Bob was also with Gateway as senior director of business planning. Bob was a consultant at one time with Boston Consulting Group. Bob was also an intelligence officer with the U.S. Navy. So we’re wondering if there’s a connection here between the Navy The Sales Leadership Forum

I’ve been at Yahoo for about five years. I lead sales operations for the Americas. The way in which we’re structured at Yahoo, we have three regions, and each of those regions has a sales operations lead. And then we have a global sales operations lead. The global team tends to not be deeply involved in compensation planning. Yet the regional teams lead those efforts in very tight partnership with our finance organization. In fact, it would be fantastic if I had brought my finance lead here but he was unable to make it. As a sales operations person at Yahoo the areas that I focus on are sales enablement – process, sales tools, sales methodology -- and performance, understanding where we’re operating effectively in terms of cross sell, up-sell; and compensation and planning. I’m more on the planning side with my finance partner on the execution side. MARK: Brett Rogers is director of sales operations with Equifax for U.S. commercial solutions. Brett has been with Equifax since 1984 and has held several sales leadership and operations leadership roles with the company over his career. Brett was instrumental in consolidating the company’s regional credit reporting centers throughout the

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country and ran Equifax’s technical support area.

Topic One: Whose Job is it Anyway?

BRETT: Thank you. As Mark mentioned I have spent my full 26-year career in the information industry with Equifax. I started out with the company in operations and did cross over to sales and sales management and spent a little time in technology leadership.

MARK: Before we get started with the “how” of quota setting, I’d like to set the stage in terms of the “who.”

About seven years ago we developed our U.S. commercial solutions business unit and wanted to get into that space. And with my background in the various roles I’ve held I inherited a sales operations role for U.S. commercial. We have two divisions: we have our data management and marketing services area and then our risk services area. And I work very closely, obviously, with our compensation group. I have responsibility for forecasting and pipeline management. I wear several different hats. I have many different chiefs that I report to, but I think my background helps me know my primary customer – and that’s the sales team – best. And I, likewise, am looking forward to learning as much as I can about best practices with other organizations, and I appreciate you having me here today. MARK: As we get started I’d like to stress that this is a conversation with the members so please jump in if you have a question.

Who in your organization – meaning sales or sales operations, finance, marketing, senior management, etc – is involved in the quota setting process? Driving it, owning it, and also supporting it. Tell us a little bit about the players in your organizations. BOB: We have the three primary groups: sales operations, finance and sales management. I’d say at the higher level it’s a partnership as we think about the market model between sales operations and finance. And my involvement extends to setting quota for the head of the field team and head of the mid-market team. Once those two quotas are set and the overall quota for the organization, I actually hand off to the operations finance lead who works with the individual regional vice presidents and with the individual sales leaders to set individual quotas. So it’s definitely a tight partnership at the higher level, and then it’s a very tight partnership at the more tactical level between finance and sales management. Between sales ops, sales management and finance, we work everywhere from the market model to the account opportunity model and ultimately arrive at the individual quota. MARK: And, would you say, in terms of the who, that’s the right combination


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for your organization? Or have you seen it done better ways in terms of a better combination of who works together?

BOB: It’s been that way for some time. I think it’s the evolution of our company. The finance organization is actually called operations finance. And prior to two years ago there wasn’t a sales operations function. There was an operations finance function. So as my predecessor and I have come into the

BOB: We’re happy with where we’ve ended up. Over the course of our last compensation planning cycle, I’ve definitely realized there are some

Who owns the process of setting the overall sales goal in your organization? 60%

56% 47%

50%

47%

40% 30%

22%

19%

20%

6%

10%

3%

0% Finance

CEO, President, COO

Sales

Sales CFO, Head Marketing Operations of Finance

Other

Source: The Sales Leadership Forum and SalesGlobe.

challenges with the quota at the individual level. I think we need to look a bit more at the process. But I think in terms of the players it’s the right set. I know sometimes a criticism of finance is they’re not close to the market. Our finance team is really very close to sales teams and to the markets. So I feel comfortable with the way that we have it operating. MARK: That’s an interesting point. How did finance get close to market? Has it been that way from some time or was there an approach that they took?


role and worked to create a more formal operations function we’ve taken certain pieces from the operations finance group. We’re still working in close partnership, but there’s a very well-rounded process and expertise sitting inside the finance organization. MARK: I think a lot of organizations would envy that in terms of getting the finance people close to what’s going on in the market. STEVE: We have a very similar collaborative process involving sales management, finance and the sales operations group. And I’m speaking specifically about the digital division. 18

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etc., for the current year. But around Thanksgiving we hand off the bookings requirement and the sales ops folks work with the field management in developing individual quota requirements at the rep level.

We have a physical, or box business, that has a different process. Within digital, though, a little bit of an inversion from the Yahoo model where we, the finance team, build the annual financial plan, usually in the fall starting in September. And out of that we’ll form a bookings requirement.

MARK: One of the things I find interesting about your organization, we

Who owns the process of allocating that goal to the sales organization? 80% 70% 60% 50% 40% 30% 20% 10% 0%

67% 50% 19% 6%

6%

3%

0%

Source: The Sales Leadership Forum and SalesGlobe.

So what we establish from that financial plan in collaboration with the corporate folks in terms of our financial targets, we’ll help form a bookings requirement for new revenue bookings for the following year. And we’ll do a hand-off right around Thanksgiving, in midNovember, to sales operations and sales management. We’ll allow them to take the leadership role in finding a quota model for the following year from our bookings plan. Then, later on in the year, we do the measurement and reporting side. Once the year kicks off we’ll measure the field and we’ll own attainment reporting, The Sales Leadership Forum

see this in some companies, is that sales operations on the digital side is actually within finance, whereas you see sales operations in a lot of companies within the sales organization. STEVE: That’s right. It is unique, and it’s unique within Iron Mountain. In the paper business the sales ops folks report into sales, but here, we’ve opted to keep them under the finance umbrella. BRETT: Likewise we have a very cohesive, collaborative effort between sales leadership, sales operations and finance. We have had the benefit of having a very good CFO dedicated to 19

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