Selling Excellence - Sales Compensation Plan

Selling Excellence in an Omni-Channel World

Harvard Business School Senior Lecturer Frank Cespedes talks about how selling has (and has not) changed, and how to hire and prepare the sales leaders of tomorrow. 

Something we have heard often in the last two years is that the salesperson is in decline or even dying – in the current jargon, being disintermediated – as the pandemic pushes e-commerce into the foreground. I disagree.

When I ask executives to estimate what percentage of U.S. retail sales is e-commerce, I typically hear answers of 30% to 60%. The actual data, from the Department of Commerce, show that right before the pandemic, in 2019, the number was about 11.5%. In Q2 of 2020, at the height of lockdown conditions, that number climbed to 15.5%. It has trended downward every quarter since, with Q4 of 2021 at 12.9%. Surprised? 

Ours is not a digital-eats-physical world; It’s an omnichannel buying world. My latest book, Sales Management That Works, examines how this has rendered many of our models for selling, hiring, and pricing ineffective and often obsolete.

Obsolete selling models

For years, we viewed sales as a sequential process: from awareness to interest, to desire, to action. A-I-D-A. That’s why we talk about pipelines, funnels, and so on. But that’s not how buying and selling works anymore in most categories.

Buyers are online and offline at multiple times during their buying journeys, dealing with influencers, and visiting buying forums. In my book, I call this phenomenon “Parallel Streams.” One sales manager described it more colorfully: “We don’t have a funnel anymore. We have a plate of spaghetti.”

This new reality makes sellers and sales managers more essential, not less – but their roles have changed dramatically. Many companies don’t need their most expensive reps doing lead generation; leave that to less expensive people, algorithms, or online demos.

Instead, sales managers must develop new competencies for a data-driven world. More than 50% of the time, sales data go not to the CRO, but into the data groups that report up to finance. Finance then asks questions that go beyond simple sales volume: How are people allocated? What does it cost to service one segment versus another? What’s our return on invested capital? If you’re a sales professional, make sure you develop your financial literacy. You’re going to have to speak that language.

With omni-channel buying, selling is also becoming more of a cross-functional activity. Online, customers can reach out for information from many people in an organization, but the salesperson is still the de facto integrator of all these conversations. To deal with all this, sales managers and leaders need greater business acumen than ever before.

In this world, moreover, much crucial data about buying is not in the firm’s CRM system; it’s in the heads of account managers and only becomes actionable thru good performance reviews. When sales managers do cursory, drive-by reviews, they not only perpetuate a culture of under-performance; they also inhibit the flow of vital information in the organization.

Outmoded hiring and training models

Companies spend 20% more per capita on sales training than on any other function, but the ROI of sales training is disappointing. There are many reasons for this, but it begins with hiring.

There are roughly 4,500 colleges and universities in the United States; less than 300 even offer a sales course, let alone a sales program. Sales is an area of business where most people start out knowing almost nothing about what they’re going to get paid for. That’s why companies spend so much on training. And that’s why they need to hire better: it’s difficult to train and develop someone who is a poor fit for the job in the first place.

Many managers rely on one or two job interviews to make their choice, but the research indicates that the correlation between evaluations from interviews and actual on-the-job behavior tends to range from about 0.2 to 0.4. In other words, at best, it’s less than the 0.5 of flipping a coin. Fortunately, hiring and training are areas where technology can be a tremendous help.

If you aren’t already doing talent assessments before your interviews, you should be. But you must commit to the process – don’t take shortcuts. First, you need an assessment that’s relevant to what you’re doing. Many companies still use a Myers-Briggs assessment, but that was never intended for hiring. Use a tool designed to assess candidates for selling roles. Second, your people need to be trained to conduct and evaluate assessments. Make sure you know what you’re doing. Like any other tool, talent assessments are only as good as the person using them.

Outdated pricing models

Price is a moment of truth where you test the coherence of your strategy and value proposition. It’s important to have ongoing price testing, but in the past, this was too often done through surveys.

The problem with surveys is the disparity between what people say and their actual behavior in the marketplace. With pricing, in particular, surveys tend to focus on the number, independent of other value elements. No one has ever said, “yes, I’d like to pay more,” but smart buyers are always looking for value. 

We now have good online means of testing prices that get at behavior more directly. People click, or they don’t click. They buy, or they don’t buy. This gives you an ongoing read of how real customers are responding to your total value proposition, price included. Now you can build price into your overall offering, versus waiting for that moment of truth.

As to pricing models, research shows us that about 75% of companies use a cost-plus model: This is our cost, let’s see if we can get 10% over, 20% over, whatever. Read my book, look at the examples, look at the data. The reality is, there are more opportunities, not less, to do value pricing, as opposed to cost-plus. Fine-tune your structure, then test, test, test.

Selling is not only a core profit-maximizing activity; in service economies like the U.S. and many other countries, it’s also a social issue that affects growth, living standards, and the lives of millions of people. I hope my book helps managers better understand what is and is not changing in this vital area. 

Want to hear Frank talk more about sales? Listen to our corresponding podcast episode here.

Frank Cespedes is a senior lecturer at the Harvard School of Business. He is a veteran businessperson, sales leader, and a consultant in business, sales, and revenue generation. Dr. Cespedes is the author of seven books including his most recent, Sales Management that Works.

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