While many established sales organizations use the hunter-farmer model as their sales force organization model, there are inevitably geographic territories or customer segments that do not justify a dedicated team of new business sellers (“hunters”) and account managers (“farmers”).
New business sales jobs focus primarily on acquiring new accounts. The incentive plan rewards for new revenue or profit margin brought to the company. In contrast, account managers often are assigned a book of business that includes several new business sellers’ territories. Their focus is on retaining and growing established accounts (so new business sellers can continue to bring in new customers).
The territory manager we will discuss is a hybrid of the two with the expectation to not only acquire new customers but also retain these customers (and grow revenue or profit margin). The compensation plan that results is often is a hybrid of the hunter and farmer plans’ key components that may let the territory manager decide whether hunting or farming will maximize the incentive pay regardless of sales management’s preference for a more balanced approach.
An alternative approach that has been more successful in achieving sales management’s objective is to measure performance and pay incentive pay based on net new business revenue or profit margin. This approach communicates to territory managers that any lost business must be offset by new customer acquisition or selling additional products or services to current customers.
The key is that the net new business goal is set based on historical territory performance plus the desired growth. The goal will not usually be as great as for a direct seller since the lost business goal for account managers is an offset to the growth. In addition, there is often real work involved in servicing and maintaining the established book at historical levels before any growth is achieved. However, the net new business goal should always be a positive number – new business exceed anticipated losses to keep the territory manager focused on growing the business by at least the overall percent the company is expecting revenue or profit margin to grow.
When goal setting is a challenge for this job and results may be volatile, and effective compensation arrangement may be a mix of bonus and commission. For example a prorated bonus is paid for performance above threshold to excellence (e.g., 80% to 120%) then a commission is paid for above excellence performance (over 120% in this example). This approach retains the needed linkage between pay and performance while ensuring that the additional incentive dollars are self-funded.
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.