Phone Works Inside Sales Compensation Report - Q4 2007

Survey Background

Every year in the fourth quarter, Phone Works conducts an online 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:

Sixty percent 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 $152,444 (including Field Sales), with a wide range from $1k - $10M.
Twenty-two percent of companies sell Software as a Service, 23% sell perpetual licenses, 33% sell both, and 22% sell neither. For companies that sell products on demand, 71% reported an average deal size in terms of a one year subscription.

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

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 Development, Lead Generation, Business Development, Market Development, Telebusiness, Demand Generation, Account Development, Deal Development, and Corporate Sales.

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

Bonuses are based on a combination of the following metrics (see Figure 1):

Revenue (65%)
Number of leads (58%)
Quality of leads (45%)
Appointments (42%)
Activities (calls, connected calls, etc.) (26%)
Pipeline contribution (19%)

Seventy-nine percent of companies include stock or stock options as part of their sales development representative compensation packages and 86% include that as part of their sales development manager compensation packages.
Thirty-two percent include Club eligibility as a perk for the sales development representatives. 46% do so for managers.

Top Challenges with Sales Development Compensation Plans

We continue to see a fair number of sales development compensation plans that include a sales quota. And every year we hear sales development representatives and managers express concern that the revenue component is de-motivating since they have no direct responsibility for closing deals and generating revenue. Good compensation plans reward results that are within the control of a sales representative. Since Sales Development is not chartered with closing revenue, a compensation plan with a revenue quota can be counter-productive rather than motivating if their quota-carrying team-mates are not performing. On the other hand, a plan that promotes delivery of a steady stream of quality leads to the sales organization and rewards teamwork between Sales Development and deal-closing sales teams will focus the sales development reps on their number one objective: developing a specified quantity and quality of opportunities that can be converted to sales.

About the Sales Development Groups in Our Survey

The primary responsibility of the group is to drive leads to Field Sales in 71% of companies, while 50% are responsible for generating leads for Inside Sales and 21% generate leads for the Channel.
Thirty one percent of groups are outbound only, while 46% are both outbound and inbound. 23% were inbound only, which is significant increase over 6% in 2006. Inbound activity is defined as following up on marketing events and inquiries while outbound is defined as cold-calling.
The average group size is 9 representatives with an average ratio of 4 field representatives per rep, and 5 reps to a sales development manager.
Eighty-three percent of the time Sales is responsible for sales development and 40% of the time Marketing has responsibility for the group. It is not uncommon for the two groups share responsibility for Sales Development.
Seventy-two percent of sales development representatives achieved their goals in 2006 (up from 55% in 2006).
Sales Development initiates an average of 50% of total US revenue.
17% of responding Sales Development Managers report to a President/CEO, 34% to an SVP, 29% to a VP, 17% to a Director.

Figure 1. Sales Development 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.

Our respondents’ other names for this function include: Inside Sales, Corporate Sales, Telesales, Telephone Sales, Direct Sales, and Maintenance Renewal.

Trends in telesales departments include the following:

Average quota for representatives is $3.6M. For managers, average quota is $20M, ranging from $80K to $150M.
In 63% of companies, representatives are eligible for Quota Club. 55% of managers are eligible for Club.
In 49% of companies, representatives are eligible for a bonus in addition to sales commissions and 31% of managers have a bonus program.
Bonuses are based on a wide variety of objectives, including:

Achieving sales/performance goals
Exceeding individual or team quotas
New accounts
Consistent performance
Call activity
Early goal attainment
Subscription sales
Pipeline development

In 67% of companies, telesales representatives are eligible to receive stock or stock options and managers are eligible for this perk in 73% of companies.
In 50% of companies, Telesales has a team quota shared with the Field.
In 63% of companies, the field representative gets paid on what a telesales representative sells (up from 44% in 2006).

About the Telesales Groups in our Survey

Fifty-three percent of telesales groups are both inbound and outbound while 28% are mostly outbound.
Eighty-one percent of companies report having a field sales organization in addition to Telesales.
The average number of field representatives to telesales representatives is 5, and there are on average 7 telesales representatives to each manager.
The average telesales group size is 38 with a high of 1,000 and a low of 1.
Telesales is responsible for an average of 37% of U.S. revenues.
The average order size of a telesales deal is $31,419.
The average telesales cycle is 3 months.
The average number of deals closed per quarter per telesales representatives is 32 with a high of 400 and a low of 1.
The price range of products and/or services sold by Telesales ranges widely - from $1,000 to $1,500,000.
For telesales groups selling Software as a Service, average deal size is most likely to be expressed in terms of one-year subscription (76%) and annual quota is most likely to be based on first year subscriptions only (61%).
Eighteen percent (13%) of telesales managers report to a CEO/President, 67% to a Senior Vice President or Vice President, and 21% report to a Director.

Top Challenges with Telesales Compensation Plans

As with the challenges we reported with sales development compensation plans, we see similar challenges with telesales compensation plans that include incentives and quotas that are based on another organization - usually Field Sales - meeting revenue numbers. We have found there are other ways to accomplish “team behavior” (i.e., getting Telesales and the field to work together in a shared territory) and drive more revenue while holding each sales representative individually accountable. We explore this topic in further detail in our next section, “Telesales and the Field”.

The other common compliant with Telesales is a paucity of leads. Sales representatives who should be focused on the final stages of the sales cycle (i.e. closing) are spending too much time cold calling to effectively make their quotas. To have an efficient, high-transaction telesales team, you do need a well-honed marketing machine driving enough inbound quality leads across all territories to keep telesales representatives from having to do their own lead generation. With proper procedures and processes, cold calling and other lead development activities can have a positive effect on revenue, but are best handled by a sales development group rather than Telesales. When Telesales is asked to generate leads in addition to closing them, this lengthens the sales cycle and can impact quota-achievement.

Telesales and the Field

Fifty 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 2 below shows the products and services that Telesales sells. Figure 3 illustrates the key differences in responsibilities between Telesales and Field Sales.

Figure 2. Products and Services Sold by Telesales

Figure 3. 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.

For Inside Senior Sales Executives, we found:

Eighty-six percent of these executives have a quota and the average quota is $140M with a low of $3,000 and a high of $600 million.
Seventy-nine percent of these executives receive stock or stock options.
Seventy-five percent are eligible for Quota Club (up significantly from 46% in 2006).
For inside sales executive-level respondents, the average number of representatives in the department is 163 and the average number of direct reports is 4.
Interestingly, managers of just one function, such as Sales Development or Telesales do not have lower target compensation than managers of both functions.

Figure 4. Inside Sales Executive Compensation is Primarily Based on Revenue

Figure 5. 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 6. Companies’ Headquarters Location

Figure 7. Number of Employees

Figure 8. Stage of Company

Figure 9. What Does the Company Sell?

Figure 10. Sales Channels

Inside Sales Compensation Plan Best Practices

In conclusion, we offer best practices, based on the challenges reported and our seventeen 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.