Sales MBOs – Never Mistake Activity for Achievement

Sales MBOsA Director or Sales Operations has better than a 50/50 chance that she will write and evaluate her own MBO this quarter. Sales VPs are notoriously bad at administering MBOs. It is a fire drill early in the quarter, forgotten for a few weeks and an administrative headache on the back end.

The argument in favor of MBOs for sales people begins like this:

“MBOs are  an incentive for sales reps to focus on long-term projects and tasks they would not otherwise do”.

When someone who is paid primarily on commission isn’t doing something, you’ve got to ask. Why? Are they just too focused on prospecting, building pipeline or closing deals?

 

4 Specific Reasons to Avoid MBOs

Distraction

Focus and commitment are the two most precious commodities in a sales organization. Once a quarterly MBO is part of the compensation plan, it’s going to take up cycles whether it’s a top priority or the best idea you could come up with in a 15-minute meeting. How much of the sales team’s energy, focus and drive are you willing to allocate to activity not directly related to making the number this quarter?

No Substitute for Leadership

When it comes to executing priority sales initiatives, you must lead from the front. A sales team should have 1 or 2 priority initiatives each quarter that strengthen our ability to reach sales goals consistently. Administrative exercises like MBOs only provide the illusion of incremental impact. Sales people will do the bare minimum to get paid if it’s simply a clerical exercise that is not emphasized by senior leadership.

Administrative Cost

The real cost of MBOs is much, much higher than you think. A $130,000 salary is about $65 per hour. Consider all of the hours spent manually administering and complying with the MBO by each person that has to touch it including sales reps, accounting and payroll. Add the actual payout. Then, ask yourself if the same result could have been obtained without spending time and money that is not directly offset by a sale. What is the opportunity cost of time spent complying with MBOs?

Complexity

A significant problem with compensation plans is complexity. The enterprise sales operations principle is keep it simple and keep it focused on the mission – the company must make its number each and every quarter. Miss 2 quarters in a row and there will be consequences. MBOs are an unnecessary complication in the compensation plan.

3 Ideas to Salvage the MBO

If you are locked into an MBO structure or just not convinced. There are some things you can do to connect clear objectives with real achievement.

“Never Mistake Activity for Achievement”John Wooden, Legendary Basketball Coach

  • Build a great (simple) compensation plan that pays well
  • Prioritize and align sales initiatives with senior leadership
  • Link MBOs to sales achievement

Let’s look at 3 circumstances where quota-based compensations plan can break down – new hires, special projects and early stage start-ups. Gamification is an excellent approach to on-boarding and new product launch because it utilizes intrinsic rewards, recognition and cash alternatives effectively. Combining game mechanics and SMART objectives work best when the payout is ultimately connected to a sale.


Examples

(1) New Hire (Sales):  For each of your first ________ months, your standard commission % will be accelerated by _________ provided that you attain Experience Points  scores above [target] each month.

 

(2) Project Completion (Sales Ops): For the next 2 quarters following acceptance of _________ project delivery by _________, your quarterly bonus will be accelerated by ___________ provided:

a.) [Company] exceeds its quarterly plan

b.) Field Survey shows satisfaction of at least   __________

 

(3) Sales Contests: New sales of [Product] over $ ___________ will be compensated at ______________% provided that SFDC opportunity record shows __________ and _______________.

 


 

Conclusion

Don’t allow MBOs to become a crutch. Compliance with sales policy and CRM requirements are non-negotiable conditions of employment. Introducing financial incentives to achieve cooperation will be interpreted correctly as a sign of weakness and diminishes the level of respect for leadership found in a healthy sales culture. Over-zealous policy or too heavy an administrative burden signals management just doesn’t get it and has an equally negative effect. Clear communication on why a particular sales policy is important to the success of the company enables people to buy in and consistency leads to personal accountability.

Changing behavior is hard work. When you personally lead a sales initiative by advocating for it at every team call, 1:1 meeting and hallway conversation you will affect people by your example and they will embrace the change. No MBO necessary.

Resources

Collaborate on your MBO Strategy

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About Neal Murphy

Neal Murphy is the publisher of Enterprise Sales Operations and former VP of Worldwide Sales & Operations with 20 years experience in enterprise technology.

+Neal Murphy +ESO