#25 – November 2011

Targets for sales people –”Close to person – Close in time”

There are a lot of opinions on how you should target your sales force. Let’s review a couple of aspects.

Individual targets or group targets? This is an area which creates a lot of strong feelings: “Group targets stimulate cooperation, individual targets creates dysfunctional behaviour and egotism”. “Individual targets promotes action, group target has almost no effect”.

In our opinion, individual targets are always to be preferred since it creates personal accountability and drives individual action to a much higher extent (“Close to person”). However, it requires that the individual sales person can affect the result and has clear responsibilities. You also have to assume that the organisation will handle potential “egotism” through good culture and management. Of course, there may be certain situations where the individual targets very well may be complemented (or sometimes even replaced) with group targets. For example where cooperation is extra important or where you cannot allocate personal accountability.

Targets on order value or invoice value (or even at payment)? Our opinion is that results should be measured as close as possible to the sales achievement – i.e. when you took the order (“Close in time”). You may need to re-evaluate this if the sales person is needed in the process in order to make the delivery or even payment. The assessment on what measurement to go for depends on the company’s processes and risk profile.

Targets on revenue or on gross margin. In order to answer that we first need to know what the overall target for the company is – volume or profitability. Secondly, we need to know what other means are available to manage and control margins. A third question is whether you even want to expose margins to the sales force. There are no easy answers here, and it requires a discussion based on strategy and corporate targets.

And what about targets which are expressed like numbers of sold units? This could be an excellent solution in some operations. The big benefit with these targets is that they are very simple to relate to, and motivation and target achievement always benefit from simplicity.