Phone Works Inside Sales Compensation Report - Q4 2008

Survey Background

A question on everyone’s mind these days is, “How is the slow economy affecting sales compensation and quotas?”. We set out to answer this question. As we do every year in the fourth quarter, Phone Works conducted 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:

48% of the companies that responded to our survey this year are privately-held (down from 60% in 2007).
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 $164,150 (including Field Sales), with a wide range between $500 - $1.5M.
The sales price of their products and/or services ranges widely from a low of $45 to a high of $20M.
24% of responding Sales Development Managers report to a President/CEO, 28% to an SVP, 24% to a VP, and 24% to a Director.
29% of companies sell Software as a Service, 27% sell perpetual licenses, 24% sell both, and 20% sell neither.

For companies who sell products by subscription, the average deal size is most likely to be expressed as one year subscriptions (67%).

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, Sales Development, Telesales, Demand Management, , and Corporate Sales.

Sales Development Representative’s compensation remained the same from 2007. However we did see Sales Development Manager compensation drop slightly from $153K in 2007 to $147K in 2008.

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):

Quality of leads (58%)
Appointments (54%)
Number of leads (50%)
Pipeline contribution (42% - significant increase from 19% in 2007)
Revenue (35% - significant decrease from 65% in 2007)
Activities (calls, connected calls, etc.) (19%)

74% of companies include stock or stock options as part of their sales development representative compensation packages and 81% include that as part of their sales development manager compensation packages.
23% include Club eligibility as a perk for the sales development representatives. 19% do so for managers (down significantly from 46% in 2007).

About the Sales Development Groups in Our Survey

The primary responsibility of the group is to drive leads to Field Sales in 72% of companies, while 48% are responsible for generating leads for Inside Sales and 21% generate leads for the Channel.
28% of groups are outbound only, while 62% are both outbound and inbound (up significantly from 46% in 2007). 10% were inbound only (significant decrease from 23% in 2007). Inbound activity is defined as following up on marketing events and inquiries while outbound is defined as cold-calling.
The average group size is 8 representatives. The average ratio of field representatives per rep is up since 2007 (from 4 in 2007 to 6 in 2008), and number of reps to a sales development manager has also increased (from 5 in 2007 to 7 in 2008).
86% of the time Sales is responsible for sales development and 28% of the time Marketing has responsibility for the group (the question allowed for multiple answers).
74% of sales development representatives are achieving their goals this year.
Sales Development initiates an average of 46% of total US revenue.
In addition to CRM/SFA, they are most likely to use mass email solutions (69%), online meetings/demos (66%), phone system reporting (55%), and email to web tracking solutions (55%) to support of their teams.

The percent of organizations that base incentives on pipeline contribution (vs. revenue) has increased significantly since 2007 (from 19% for reps in 2007 to 42% currently and from 24% for managers in 2007 to 41% currently).

Figure 1. 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: Our respondents’ other names for this function include: Inside Sales (most common, by far), Corporate Sales, Account Sales, Account Executives, Territory Sales, Installed Base Sales Team, and Service Renewals.

Trends in telesales departments include the following:

Average quota for representatives is $1.7M, ranging broadly with a high of $20M and a low of $100,000. For managers, average quota is $29M, ranging from $1M to $260M.
In 56% of companies, representatives are eligible for Quota Club. 42% of managers are eligible for Club.
In 52% of companies, representatives are eligible for a bonus in addition to sales commissions and 29% of managers have a bonus program.
Bonuses are based on a wide variety of objectives, including:

Achieving sales/performance goals
Year-over-year growth
Win rate
# of new named accounts
Reducing sales cycle

Stock has become more likely to be included in compensation packages: 80% of companies consider telesales representatives eligible to receive stock or stock options (vs. 67% in 2007) and managers are eligible for this perk in 83% of companies (vs. 73% in 2007).
In 50% of companies, Telesales has a team quota shared with the Field.
There is a trend toward field representatives getting paid on what telesales representatives sell: currently this occurs in 75% of companies which is up for the 2nd year in a row from 63% in 2007 and 44% in 2006.
Besides CRM/SFA, these groups are primarily using online meetings/demos (88%) and phone system recording (63%) in their telesales efforts.

About the Telesales Groups in our Survey

52% of telesales groups are both inbound and outbound while 32% are mostly outbound.
80% of companies report having a field sales organization in addition to Telesales.
The average number of field representatives to telesales representatives is 6, and there are on average 8 telesales representatives to each manager (both are up slightly since 2007).
The average telesales group size is 15 with a high of 45 and a low of 1.
Telesales is responsible for an average of 35% of U.S. revenues.
The average order size of a telesales deal is $40,679, which is unusually high. Removing a handful of atypical large average order sizes from the equation drops the average deal size to $28,000.
The average telesales cycle is 77 days.
The average number of deals closed per quarter per telesales representatives is 17 with a high of 120 and a low of 3.
The price range of products and/or services sold by Telesales ranges broadly between $99 to $750K.
For telesales groups selling Software as a Service, average deal size is most likely to be expressed in terms of one-year subscription (83%) and annual quota is most likely to be based on first year subscriptions only (58%).

Telesales and the Field

65% of telesales groups in this year’s survey share a quota with the Field which has increased from 50% in 2007. 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. The number of Telesales groups selling products/services increased from 81% in 2007 to 92% currently.

Figure 2. Products and Services Sold by Telesales

Figure 3 illustrates what the key differences are in responsibilities between Telesales and Field Sales. Telesales has seen a significant increase in the following items/responsibilities this year:

Shared quota w/field
Revenue amount
Geography/named accounts

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:

83% of these executives have a quota and the average quota is $23.5M with a low of $3M and a high of $43 million.
100% of them say that their incentive compensation is at least partly based on revenue, however there has been a significant increase this year in the number of executives who are also paid based on shared revenue w/the field (from 7% in 2007 to 50% currently), MBO’s (from 14% to 50%) and pipeline contribution (from 7% to 33%).
83% of these executives receive stock or stock options.
33% are eligible for Quota Club.
For inside sales executive-level respondents, the average number of representatives in the department is 32 and the average number of direct reports is 4.

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

The number of these executives who manage Renewals/Service Sales and/or Sales Development has more than doubled since 2007.

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

There was a large decrease in the number of companies who participated from companies with between 151-500 employees (from 22% in 2007 to 7% currently).

Figure 7. Number of Employees

Figure 8. Stage of Company

Figure 9. What Does the Company Sell?

There has been a significant increase in the number of organizations that are selling direct only (from 28% in 2007 to 45% currently).

Figure 10. 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

Incentive compensation should be paid monthly.
Whether you are using lists to call from or following up on marketing program inquiries, you should be talking to people in your identified target markets and audience.
Ensure that there are specific objective guidelines and criteria for defining a “qualified lead or meeting” that have been agreed upon between field sales and the Sales Development team.
Quantity and quality need to be equally considered.
Do not over-emphasize revenue if the group has no control over closing deals. It is typically de-motivating.
The objectives should be easily tracked through processes and systems.
Field Sales Representatives should be held accountable on timely lead follow up and providing feedback on lead quality.
Allowing Sales Development Representatives to track down their passed leads to Field Sales wastes valuable time finding new qualified leads.

For Telesales

Structure the 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.
Telesales is the perfect channel for driving monthly revenue and can help alter the “hockey stick” effect if compensation is paid monthly and quotas are driven monthly.
Align marketing programs with group revenue goals.
Structure the 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: assign Telesales individual contribution goals they have control over and can be measured on. Start-ups without any historic data should consider setting quarterly goals and quotas to give the flexibility to correct faulty assumptions made and keep sales representatives motivated while developing historical data and trends.

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