On August 7th, The Wall Street Journal reported “Sirius [1] has been hurt by plunging auto sales as many new subscribers come on board with the purchase of a new vehicle.” (Sirius’s Loss Widens as Subscribers Slip)
Ooops. People were fat, dumb, and happy when cars were selling and subscriptions were growing. A drop in automobile demand took away the fat and the happy part, and what’s left isn’t pretty. Did Sirius anticipate the car-purchase pothole? No doubt it looks like a crater, now that it’s visible in the CEO’s rear view mirror.
Yet with the company’s revenue increasing 1.1% over the previous fiscal year, CEO Mel Karmazin has reason to downplay fewer subscribers and increased customer churn. “Growing our revenue in the face of broad declines in the advertising and automotive markets is a remarkable accomplishment, and we are well positioned for a rebound in auto sales,” he said. -–When and if that happens. What other assumptions is he making? What happens if he’s wrong?
The fallout from poor business assumptions rarely stays confined to the executive suite. Pity the sales force, which often bears the brunt when strategic assumptions are based on sunshiny forecasts, or when risks aren’t assigned equitably. Squeezed between prospects that don’t buy and management that says “sell what we’ve got!” the challenges of “making plan” can be onerous, to say the least.
I’ve seen this scenario played out in many sales organizations: Risky strategies hedged by flogging the sales force for more revenue. One company I worked with championed the flogging idea with a simple motivational poster, suitably framed: “We’re having a sales contest, and the winner gets to keep his job.”
At another company where I worked, the flogging idea wasn't hanging on the wall, but it was subtly embedded into the practice of assigning annual quotas. While the process was more alchemy than science, quota assignment dependably included increased individual revenue targets coupled to decreased commission percentages. The design, of course, was to make a salesperson work harder to maintain his or her income. That afforded management the opportunity to tinker with new product introductions, marketing promotions, and channel strategies. Not surprisingly, some initiatives succeeded, while others failed, sometimes miserably.
Call it risk transfer in a sales milieu, a widespread practice—one reason that a more popular version of the saying feces flows downhill, rings true not only for salespeople, but for many professions. But managing selling risk presents a strategic financial challenge that every company must address. A recent article on the topic in The CFO Sales Advisory (Over-Assigning Quotas: A Power to Be Used for Good, Not for Evil) [2], an e-newsletter published by sales advisory firm 121Silicon Valley, stated it this way:
“At a given level in the sales organization, the sum of the sales quotas . . . is greater than the sum of the quotas of the sales manager(s) one level up. In larger companies, using the practice at multiple levels of sales management means that the difference between the sum of the quotas of the individual contributor sales reps and the corporate sales target can provide a pretty large cushion.” Seems fair, depending on how one defines "pretty large." All levels in an enterprise share risks and responsibility for mitigating them. And they share an upside as well, when risks are managed effectively. But is this practice really fair? And is it subject to abuse?
To answer those questions, the newsletter concludes with a warning: “Don’t ever create an over-assigned situation simply by raising the quotas at lower levels in the organization. That just doesn’t work. It’s destructive to morale and trust – when you ask people to do more work for the same amount of pay, they feel like they’ve gotten a pay cut. And if you ‘fix’ that perception by also raising the target commissions at 100% of quota, you’ve lost some of the savings from keeping sales headcount down. Moreover, it’s just not realistic to think that you can get a seasoned sales and sales management team to sell more just by telling them to sell more. Generally, that only works if the quotas were too low to begin with, and if that was the case, you have a different management problem.”