Phone Works

Phone Works Inside Sales Compensation Report - Q4 2006

Survey Background

Every year in the fourth quarter, Phone Works conducts a compensation survey of inside sales professionals working in business-to-business technology companies. The majority of these businesses are based in the San Francisco Bay Area. The profile of the companies responding to this year’s survey include:

Almost 70% of the companies that responded to our survey this year are privately-held.
The number of employees ranges from under 50 to over 1000.
Annual revenues range from less than one million dollars to over one billion dollars.
The average order size for all deals is $135,000 (including Field Sales), with a range of $1000 to $1,250,000.
Forty-eight percent (48%) of companies sell Software as a Service, 35% sell perpetual licenses and 35% sell both.

You can read more about our survey respondents in the last section of this article, “About the Surveyed Companies”.

This year’s responders--executives, managers and representatives in both Sales Development and Telesales--participated by completing an online survey or written form. Forty-three percent (43%) of respondents are members of the Telebusiness Alliance, an organization of inside sales professionals representing leading companies in the San Francisco Bay Area, including EMC, Oracle, Genesys, Macrovision, VeriSign, WindRiver, LegalMatch, Riverbed Technology, Sendmail, Witness Systems and Genius.

Sales Development Compensation

Sales Development refers to groups and representatives that contribute to sales by generating and/or qualifying leads (or appointments) to keep the pipeline full. They do not close deals. Our respondents’ other names for this function include: Inside Sales, Lead Generation, New Business Development, Opportunity Development, Corporate Sales, Demand Management, and Lead Qualifiers.

Title	Base Salary	Total Package
Sales Development Representative	Average: $51K Range: $30 - 90K	Average: $85K Range: $35 - 112K
Sales Development Manager	Average: $85K Range: $55 - 130K	Average: $134K Range: $70 - 200K

The survey data showed us some key sales development compensation trends. They include:

Bonuses are typically based on a combination of some common metrics:

Number of leads
Quality of leads
Appointments
Pipeline contribution
Activities (calls, connected calls, etc.)

While fifty percent (50%) of companies based bonus compensation on the number of leads and/or appointments delivered, 88% based compensation on both the number and quality of leads or appointments delivered. Fifty percent (50%) of companies include a revenue component in the sales development compensation plan for which the field sales representatives are ultimately responsible.
Eighty-nine percent (89%) of companies include stock or stock options as part of their sales development representative and sales development manager compensation packages.
Thirty-nine percent (39%) include Club eligibility as a perk for the sales development representatives. Forty-eight percent (48%) of managers are eligible to attend Club.

About the Sales Development Groups in Our Survey

The primary responsibility of the group is to drive leads to Field Sales in 77% of companies, while 46% are responsible for generating leads for Inside Sales and 18% generate leads for the Channel.
Thirty-eight percent (38%) of groups are outbound only, while 56% are both outbound and inbound. Just 6% were inbound only. Inbound activity is defined as following up on marketing inquiries while outbound is defined as cold-calling.
Group size average is 5 representatives with an average ratio of 1 sales development representative to 4 field representatives, and 4 sales development representatives to 1 sales development manager.
Almost 80% of sales development groups report to Sales. The remainder report to Marketing.
Fifty-five percent (55%) of sales development representatives achieved their goals in 2006.
Sales Development initiates an average of 52% of total US revenue.
Fourteen percent (14%) of responding Sales Development Managers report to a President/CEO, 36% to an SVP, 36% to a VP, 14% to a Director.

Figure 1. Sales Development Representative Incentive Compensation is Based on Multiple Metrics

Figure 2. Sales Development Manager Incentive Compensation is Based on Multiple Metrics.

Telesales Compensation

Telesales groups and representatives carry sales quotas and close deals without traveling. Instead, they use the telephone and online tools such as email, the web, and internet-based technologies.

Other names for this function include: Sales, Inside Sales, Corporate Sales, Installed Base Group, Account Executives and Inside Sales Closers.

Title	Base Salary	Total Package
Telesales Representative	Average: $60K Range: $30 - 85K	Average: $110K Range: $60 - 135K
Telesales Manager	Average: $87K Range: $55-127K	Average: $157K Range: $80 - 265K

Trends in telesales departments include the following:

Median quota for representatives is $775,000 with a high of $11 million and a low of $110,000. For managers, average quota is $10.8 million with a low of $160,000 and a high of $50 million.
In 67% of companies, representatives are eligible for Quota Club. Sixty-four percent (64%) of managers are eligible for Club.
In 41% of companies, representatives are eligible for a bonus in addition to sales commissions. Forty-four percent (44%) of managers have a bonus program.
The bonus, if included, is based on a wide variety of objectives, including:

Exceeding individual or team quotas
Consistent performance
Meeting partner selling goals
Achieving monthly objectives based on new product sales, evaluations, installations, pipeline, new customers, call activity, transactions, feedback from Field Sales, etc.
Revenue, calls activity

In 77% of companies, telesales representatives are eligible to receive stock or stock options. Managers are eligible for this perk in 88% of companies.
In 46% of companies, Telesales has a team quota shared with the Field.
In 44% of companies, the field representative gets paid on what a telesales representative sells.

About the Telesales Groups in our Survey

Half of telesales groups are both inbound and outbound while a third are mostly outbound.
Seventy-eight percent (78%) of companies report having a field sales organization in addition to Telesales.
The average number of field representatives to telesales representatives is 4, and there are on average 6 telesales representatives to each manager.
The average telesales group size is 15 with a high of 100 and a low of 2.
Telesales is responsible for an average of 50% of U.S. revenues with a high of 100% and a low of 10%.
The average order size of a telesales deal is $17,633.
The average telesales cycle is 3 months, with a low of 1 and a high of 6 months.
The average number of deals closed per quarter per telesales representatives is 45 with a high of 120 and a low of 3.
The price range of products and/or services sold by Telesales is less than $100 to $500,000.
For telesales groups selling Software as a Service, 80% sell the first year subscription only, while 20% sell three-year subscriptions.
Eighteen percent (18%) of telesales managers report to a CEO/President, 35% to a Senior Vice President, 35% to a Vice President, and 12% report to a Director.

Telesales and the Field

Fifty-five percent of telesales groups in this year’s survey share a quota with the Field. In theory, this should do away with “channel conflict” and customer confusion over which group to contact and when. But this is often not the case. Whether or not the telesales group has a separate “territory” and P&L, it is important to clearly differentiate what Telesales sells (or contributes to the sale) from what the Field (or a partner) sells. Articulating and measuring each group’s role in the sales cycle keeps internal conflict to a minimum and is best for your customers.

Figure 3 below shows the products and services that Telesales sells. Figure 4 shows whether the Telesales/Field split is by revenue amount, separate products, geographic territory vs. named accounts, customer base, new business, or other differentiators.

Figure 3. Products and Services Sold by Telesales

Figure 4. How is Telesales differentiated from what the Field sells?

Inside Sales Senior Executives

Our survey included a separate section for Senior Manager, Director and Vice President-level managers in Inside Sales, defined as any managerial respondent who had other managers reporting to them in addition to representatives.

Title	Base Salary	Total Package
Sr. Sales Executives	Average: 114K Range: $55 - 165K	Average: $194K Range: $150 - 265K

For Inside Senior Sales Executives, we found:

Average quota is $37 million with a low of $900,000 and a high of $130 million.
All surveyed inside senior sales executives receive stock or stock options.
Forty-six percent (46%) are eligible for Quota Club.
For inside sales executive-level respondents, the average number of representatives in the department is 18 and the average number of direct reports is two (2).
There is no apparent correlation between size of quota, number of direct reports, or number of employees in the department, and compensation.
Interestingly, managers of just one function, such as Sales Development or Telesales do not have lower target compensation than managers of both functions.

Figure 5. Inside Sales Executive Compensation is Based on Multiple Metrics

“Other” includes Retention, Hiring, and Professional Services.

Figure 6: Functions Included in Inside Sales Executives’ Departments

About the Surveyed Companies

The following graphs show an overall picture of the companies that responded to our survey.

Figure 7. Companies’ Headquarters Location

Figure 8. Number of Employees

Figure 9. Public or Private Company?

Figure 10. What Does the Company Sell?

Figure 11. Sales Channels

Inside Sales Compensation Plan Advice

In conclusion, we offer a few words of advice, based on the challenges reported and our sixteen years of experience building or restructuring Inside Sales teams for hundreds of companies.

For Sales Development

Supply good target lists and insure that marketing programs generate an appropriate number (neither too many nor too few) of targeted inquiries.
Ensure that there are specific guidelines and criteria for defining a “qualified lead”.
Assign realistic lead goals and do not emphasize quantity while disregarding quality.
Ascertain that there is a fair evaluation program in place if the Field is in control of “accepting” or “rejecting” leads.
Do not over-emphasize revenue if the group has no control over closing deals.
Have sales processes and a lead tracking system in place to accurately measure objectives.
Do not assign conflicting objectives, such as rigorous quotas along with time-consuming MBO’s.

For Telesales

Do not set the “revenue bar” above which Telesales cannot sell too low. Structure plan so that deals are sold by the least costly channel and compensate Telesales for “growing” and passing deals that must be closed by the Field.
Emphasize revenue-generation as much as possible. Delegate cold-call prospecting and other non-revenue-generating activities to another group if possible.
Align marketing programs with group revenue goals.
Set realistic quotas: neither too high nor too low.
Structure plan to motivate monthly and quarterly revenue achievement rather than over-emphasizing Q4/end-of-year sales.
Put lead generation programs in place before hiring to build pipelines for new reps.
In team models: be clear about the role of Telesales and how it contributes by giving the group measurable objectives. Do not under-compensate Telesales if field or partner representatives are underperforming while Telesales makes a measurable contribution.

And for Both Groups

Have a fair, achievable, motivating compensation plan in place that rewards superior performance, is competitive with industry standards and is aligned with your company’s goals.

Please contact Phone Works at 510.749.9073 for more information about this survey.