In larger more mature businesses the sales role may be “split” so that there are new business-focused “hunters” and existing business focused account managers (“farmers”). This helps ensure appropriate focus on both of the important sales tasks of acquiring new accounts and nurturing existing accounts. It often helps as well with filling the sales jobs since fewer people are comfortable in both the more aggressive high-risk hunting role and the more nurturing and service-oriented farming role. And it makes sales compensation design more straightforward since the compensation arrangements for these different activities are usually different.
Typical Hunter and Farmer plans
A typical Hunter plan is a first dollar commission on the sales (top line) value of new business won. Sales credit and payment may be given once the business is fully secured (e.g., contract signed), or under way (e.g., shipped, or implementation started). A typical Farmer plan is goal-based with the goal size reflecting the assigned “book” of accounts. The measure may be the sales value of renewals, recognized revenue in-year, or even the margin value of the recognized revenue in-year. And the plan is most likely a goal-based incentive with a threshold and meaningful acceleration over goal.
So how do I pay someone to do both?
There are several possible approaches here:
- Split the plan into New and Existing incentive components
Pay a first dollar commission on New and a goal-based incentive on Existing. Think about how much time the sales person should spend in each type of sale, and split their incentive at target accordingly. For example, if 40% of their time should be focused on New, then 40% of their incentive target should also be focused on New, with the remaining 60% on Existing accounts.
- Single component plan that requires both retention/growth and New
Assign a goal for Total Sales that will only be achieved if an acceptable level of business is attained AND an acceptable level of New is also achieved. A threshold level of performance may be established below which no incentive is earned in order to focus the variable compensation dollars on the range over which performance should move; this makes each added increment of sales in the performance range more valuable to the sales person. Provide meaningful acceleration for over-goal performance since this only going to happen if things go well for both new and existing accounts, a valuable outcome for the business.
- Pay on Net New
In a fast-growing business in which the question is not, “Will we grow?” but “How much will we grow?” this can be very effective. Assign a book of existing account and new business opportunities, then pay a commission on the growth (generally over the prior year). Clearly the commission rate on the growth will need to be much higher than a commission on total sales would be. WARNING: If there is any chance at all that “growth” could be negative, this is not a good choice.
Donya Rose, CSCP, is Managing Principal of The Cygnal Group. She is a recognized expert in sales compensation plan design, regularly speaking at conferences and writing published articles. She serves clients from F500 to growth-stage businesses, and advises WorldatWork on sales compensation hot topics and best practices.