Dude, where’s my SPIFF?

As SEs we often get left out in the cold when it comes to the almighty SPIFF. SPIFFs are easy to manage and measure when it comes to the sales rep. SPIFFing SEs has it’s own set of unique benefits and pitfalls and can certainly be tougher to gauge success. While it’s been increasingly common to tie an entire account team to the SPIFF where the inside rep and SE can benefit, this watering down effect does not often drive SE activity. I think it’s time we devote some attention to driving SE-focused SPIFFs.

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Are you missing out on bonuses?

I regularly receive questions pertaining to bonus splits for SEs. Many want to know what their variable comp should be given their seniority. Others have brought in a big deal and didn’t feel they got a fair shake. In this article we’ll explore some common scenarios and what you’re likely to find as you move up the food chain.

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Sales Engineer MBOs

I recently covered some of the different compensation split options available for Sales Engineers at a very high level. This prompted a few questions, mostly around the use of MBOs. As a follow-up, let me go into the various options available to SE management as well as some common pitfalls.

MBOs are targeted performance goals. As such they should always follow the SMART approach. Even though a standard quota plan is just an example of an MBO, most sales/SE managers use the term more to apply to goals other than sales targets. For this article, I will refer to it in its more general sense.

The Four Pillars

Others may group them differently, but to me there are 4 categories of MBOs for SEs:

  1. Business/financial
  2. Employee satisfaction/enablement
  3. Customer satisfaction
  4. Process (continuous) improvement

This ensures that the 3 main stakeholders in business are accounted for: shareholders/owners, employees, and customers.

Business/Financial

These are the goals that concentrate on the financial statements and address the needs of shareholders or owners. I suppose this is technically a euphemism for “shareholder satisfaction” These are also the most common compensation plan metrics—sometimes the only one (over 70% of SEs have a bonus plan tied to sales/revenue). This is even more so for AEs. Here are some options that may be available depending on your company’s revenue reporting capabilities:

  • Percent attainment of quota
  • Number of new customers
  • Number of tradeshows attended
  • Percent time spent in customer-facing activities
  • Percent growth in pipeline
  • Percent growth in average opportunity size
  • Percent decline in average opportunity age
  • Percent decline in assigned opportunities without SE involvement/tasks
  • Percent growth in deals won with SE involvement or specific activity (e.g. POC)
  • Percent growth in deals won vs. competition or specific competitors

Employee Satisfaction/Enablement

There is a host of revenue generating activities that are not specific to one’s own accounts. Creating sales collateral and supporting other account teams are specific examples. This category also applies to activities that go to morale boosters which address the needs of the employee stakeholder. Examples include:

  • Number of supplemental sales/marketing/support/implementation collateral created (and shared!)
  • Number of opportunities assisting regional sales teams in your personal niche
  • Number of posts on company bulletin boards or other social networking contributions
  • Number of published trip/win/loss reports
  • Number of informal training sessions (e.g. lunch and learns) delivered

Customer Satisfaction

Goals in this category encourage positive and long-term relationships with customers, which is in everyone’s best interest. These can include:

  • Number of repeat customers (renewals)
  • Number of published case studies or customer references
  • Percent achievement on customer sat surveys
  • Number of customer requested product features submitted to product management

Process (continuous) Improvement

Each of the other categories addressed a specific business stakeholder. Process improvement is a very broad category that concentrates on the foundational goals that generate continuous improvement in each of the others. This is best illustrated by the concept of moving the fulcrum over, or sharpening the saw in Covey terminology. It covers everything from contributions to business process improvement to personal development. Examples include:

  • Number trainings attended
  • Acquisition of a new skill or certification
  • Percent of activities documented in CRM
  • Contribution to special projects
  • Time management goals

Flexibility

Each of these basic options can be tailored (and weighted too) in numerous ways limited only by your creativity and ability to get at the data. You can focus these goals on specific products, business segments, or even competitors so that they align to company strategy.

Pitfalls

With the ability to be flexible also comes the possibility of actually lowering productivity if you aren’t wise in how you approach them. Some of the most common pitfalls include:

  • Not keeping them SMART. The biggest culprit here always seems to be measurability. In many cases a desired result is qualitative. In these cases I employ “correlated result” approach where I seek out measureable events that typically lead to (or are correlated with) the desired result I am after. Example: It’s difficult to measure someone’s product knowledge, so the measureable result is attending a training, passing a specific test, etc.
  • Not publishing continuous results. We all need immediate feedback to make the biggest impact on results. If you’re only reviewing quarterly or (gulp) annually, you’ll find the process very ineffective and discouraging.
  • Reliance on manual compilation. If you need to manually jump through hoops to get the data you need it is that much harder to integrate them into daily practice. Automate the process whenever possible.
  • No scoreboard. Even if you just keep it in your team, your people need to benchmark. Friendly competition in my experience is good. The best will benchmark against themselves. Keep it updated frequently.
  • Tedious recordkeeping. If your SEs have to spend an inordinate amount of time entering data so that you can report on it, your program is destined for failure (or minimally noncompliance).
  • Unintended consequences. Over reliance on these metrics leads to pressure to game the system. Communicate the spirit of the goals and the behavior you are wanting to see.
  • Top down only. When each of us is involved in setting our own goals, we feel natural ownership. Involve your team in the creation process, even if by a committee that standardizes them for the entire organization. No taxation without representation!
  • Not communicating the why. If your SEs don’t know why something is important, you will have a difficult time getting ownership of the number.
  • Metric overload. Anything over 10-12 goals starts to become overwhelming. Keep is short and sweet.
  • Business only. We in Sales are naturally focused on business results. Over-weighting your goals in Business ignores other stakeholders and ultimately leads to lowered effectiveness.

Hopefully this gives you a head start on crafting your own MBO program. By no means is my list comprehensive and should be thought of as a starting point of discussion. Mastering Technical Sales also has a balanced scorecard that may be helpful that matches fairly well with this post. I’m also working on a template for me to use personally that I will include here in the future.

Carrying Buckets

Once a company expands its portfolio to 2 or more products, a question arises: Should sales (and SEs) be specifically incentivized to sell all of them. And, if so, how?

You run into ethical issues if you have competing products (such as stocks in a brokerage or mortgages for a loan broker) that encourage sales to put themselves ahead of the customer. We’ll assume your company has a portfolio of mostly complementary products and simply want reps evenly focused on all or other specific products.

Incenting SEs

Ways in which I have seen this done—both directly and indirectly—include:

  • Directing specific incentives for sales reps – SEs typically have to, or should, follow the reps lead with a customer
  • Quota buckets – Having separate quotas for each product
  • SPIFFs – a bonus for specific sale or activity
  • MBO – a bonus typically not tied to specific quota attainment

While these are usually monetary based they could also be tied to awards or rewards such as club attendance.

Trouble Spots

Here are a few things to avoid when leveraging the options above.

  • Not inclusive – Only incenting reps has two problems. 1) it creates a dividing line between reps and SEs, and 2) it can create animosity when SEs are doing a lot of the specific work to drive the desired behavior and are not seeing any of the direct reward.
  • No alignment – Don’t have competing objectives. The simplest way to ensure rep/SE alignment are to have comprehensive programs meaning both take part in the same programs rather than creating separate ones. I’ve seen misalignment more often than one might think.
  • Not immediate – Year long programs don’t yield the results and focus that quarterly programs do. You need long-term programs to maintain momentum and continuity, but always try to attach quarterly milestones. This way the SEs receive immediate reward and the positive reinforcement.
  • Not realistic – This is especially important for shorter-term programs. If your average sales cycle is 9 months for a product you’re promoting, don’t set the 1st quarter SPIFF on revenue goals of the product. The SPIFF money will only go to those that already have the sale in their pipeline. It also negatively incentivizes sales teams to push the sales cycle which may be poor for customer relations.
  • Too complex – The bigger the product portfolio the more temptation exists to build in qualifiers and rules to address every situation and product. Keep the programs extremely simple and make the purpose behind clause easy to understand and clearly mapped back to corporate strategy. People are very willing to accept these decisions as long as they understand the reasoning behind them.

Finally, make sure all details are well communicated and understood as early in the term as possible. Poorly defined compensation plans are one of the biggest morale killers in a sales/SE force I have seen.

Value of Certification for SEs

Almost all of us at one point have had to get certified in a particular product. In some industries it is job critical and others it can be seen as nice to have. I’ve run into very few certifications that have actually been a detriment to advertise—though 8-10 years ago my Microsoft certifications got me uninvited to a couple UNIX shops.

Some SEs live and die by their certifications, even though it is not a job requirement. I know some that would rather schedule a visit to the dentist than Prometric. As with most things there is not a clear answer to the debate. Here is my take.

In the workplace, everyday, big decisions are made, deals are won and lost, and events take place that hinge on the slimmest of margins. An associate of mine likes to call them tie breakers.

You can not afford to be losing the tie breakers.

There are many different types of tie breakers: your dress, your speech, your likability, reputation, trust, credibility, etc. If you take a look at ways you could influence some of these (especially the last 3), I think certification definitely plays a positive role.

There are several situations to consider. If you walk into an account right after an SE from a different company pitching the same type of solution, who might a customer believe is more credible? Someone with no industry certifications or someone with 6 acronyms after their name. If you’re vying for a promotion and it comes down between you and someone with similar credentials, the certification may be the tie breaker. The same thing will play out in a job interview. These are some big factors in your life and is why I take every opportunity to stack the deck in my favor.

Having said that, this doesn’t necessarily come down to a yes or no discussion. You can draw the line in different spots. 1 certification or 5 or 17. Here are some things to consider:

– Are you a good test taker?
– Can you breeze through technical manuals?
– Are you still early in your career?
– Are there highly respected or coveted certifications in your field?
– Will your existing company pay for classes and/or tests?

The more yeses you have the more beneficial certification will be for you and the more of them you should seek. If you’re late in your career, like where you are, and have difficulty passing tests, you’re better off just obtaining 1. The sweet spot for most people is between 3-5. Holding too many certifications might make some people think you are compensating for other weaknesses. Of course hold as many as you like, just be more particular about which ones you publicize on your business card, email signature, and resume.

One other factor I’d like you to consider is interindustry certification. What I mean by that is pursuing a certification that is well respected and recognizable but falls outside your day-to-day job function. If you’re a desktop/server guy seek some network experience and certification. I would even go so far as to recommend certifications outside technology. You’d be amazed at what happens when you can put a CPA, CFP, Esq, etc. on your card. Not only is it a conversation starter, but invariably you’ll find others now in technology who once worked in these other fields as well. This practice works best when you already posses this knowledge from school or former profession or is a hobby of yours—otherwise it’s not worth the time investment.

Finally, as a manager, I think it is good practice to encourage your people to seek certification—and pay for it within reason. Not only are you contributing to their knowledgebase, you’re also contributing to general career growth and development. You’re also likely benefitting from a confidence booster as tests are passed. Most companies recognize this benefit and subsidize certification. If you’re not you may be taking a hit for it that you don’t realize.

So as an individual or company, don’t miss out on the tie breakers. You’ll find time/money here is well spent even if not immediately quantifiable.

Thoughts on Sales Engineer Compensation (Commissions)

Coming from someone who has made a career in sales this may seem like an odd question, but are pure sales-based commission plans the right way to incent reps and SEs? After giving it some thought as of late, I believe that answer to be no.

Just to be clear here, I’m speaking specifically of the how, not how much.

Before you dyed in the wool reps and SEs stop reading and write me off as an egalitarian idealist, reflect on the following:

  • Do quotas put our needs ahead of the customer?
  • Do time-based (e.g. quarterly) quotas incent us to close the deal before it should?
  • Does this behavior promote short-term gains at the expense of longer-term results?
  • Does any resultant behavior negatively impact the customer’s perception of the company? of us?
  • Does it build trust with your customers?
  • Could it incent us to recommend solutions that aren’t in the best interest of the customer?

I believe the answer to these questions is YES! Unless you can offer a staunch justification of no for these questions, hear me out.

What if we were all measured on customer satisfaction scores, or how many references we are able to obtain, or by how many customer referrals we receive, or by how many junior reps we mentored? There will always be a place for sales-based rewards, but if we don’t look first at rewarding long-term trust and relationship building, is it any wonder customers will do almost anything to avoid our calls?

Customers actually LIKE to buy things. Shouldn’t customers enjoy working with us?

My Recommendation

If you like your job-especially as a VP of Sales/Engineering-it’s probably not a wise idea to muck with the commission spigot overnight. Take a phased approach:

Year:

  1. Make base pay a larger portion of total compensation (upwards of 60% – reps; 70% – SEs). If we can’t put food on the table if a deal doesn’t close, most of us will stop at nothing to get the deal and nothing else you do will change that. Overly “hungry” sales teams do indeed bring in more revenue in the short term, but as a consequence burn bridges long term.
  2. Add a customer satisfaction portion to variable compensation. Start with 10-20%.
  3. Round out your customer focused incentives and get it closer to 50% of variable compensation. Ensure your metrics are encouraging long term partnering between various sales teams and customers.

A change of this magnitude will almost certainly result in the voluntary attrition of some sales team members-probably even some high performers. I would make the case that these are the folks who are not as in tune with their customers’ long-term needs as they should be. They are likely the same folks who change jobs every 2-3 years after they are able to make some sales but have difficulty building lasting relationships that most large companies are trying to develop today with customers.

Every situation is going to be different so fine tuning of the percentages can take quite a while, but there is definitely an upper limit to my methodology. I think most people can visualize what would happen if reps and SEs were mostly compensated on customer satisfaction. You would have us fighting even harder for discounts than our customers at the expense of shareholders. Finding the right number is a quantitative exercise assuming sales management has both access to past performance data and a repeatable sales methodology in place that minimizes the variability in forecasting/revenue generation. More on this last bit in a later post.