Values & Culture

Why does my boss wants me to sell 10 times my own salary?

This discussion often comes up in our cost of sales workshops, and I believe it is good for any manager or director to have a simple and straight forward answer to the question. There are many obvious and hidden costs to consider, and by being transparent with your team about where the money goes, you will save yourself potential problems. 

 


 

Let us take the Software example: You are working for a great start up B2B SaaS company, the team is great, you believe in both the company and the idea, but  … they ask you to sell for a million, but your on-taget-pay is less than 100k. How can this be, seriously??

 

Most recent software companies don’t have California-style financing up front, you are in Europe. This means that somehow your company need to be profitable or close to profitable EBIT wise. What is your reasonable quota?

 

Cash is king. two different cases:

 

    • Software have very high grown margins, but cash comes in slow nowadays with subscription and pay-as-you-go schemes.

 

    • Traditional things, machinery etc are paid up front or at least in conjunction with the delivery, but, the internal margins after paying internal transfer – costs of goods are much lower. 

 


 

The software case

 

Back to software –  In the old days, software sales used to book sales during the same year: product/license money came up front, and training, services and installation services were invoiced during the first year. Additionally there used to be an annual fee to stay on maintenance, support and new versions etc. (20%-25% of the initial licence fee normally)

 

Now, subscription softare – SaaS, has completely changed the game plan. What used to be a 100.000 € deal, with annual maintenance of 20.000€ has now become a 3-4.000€ monthly subscription. Over time this is great, but the company needs the money now!!

 

To comlipcate the matter, in many companies, the sales department only sees the first year of revenue after signing. Next year your customer will be handled by the customer retention or “customer success” team.

 

Since your company have no external funding for the moment, what is the reasonable quota, or sales target you should carry?  Lets look at the cost of sales and the money we can expect initially. 

 

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Profitable companies cover costs

 

A rule of thumb for any SaaS company who seeks profitability, is

 

New (first year ARR) sales, should at least cover this years customer acquisition cost (CAC) with new sales (new ARR > Cost of Sales, CAC).

This means for the company any new customer must be paid for already during the first year contract (from signing). Otherwise, the company will need external financing to cover while waiting for the second and future years payments. If first year contracts cover CoS, the company can grow with limited external financing, and not be restrained by a systematic cash flow problem for its growth.  

Think about it:

 

For any new sales, you are using company resources that your activity need on a deal.. such as techsales, new features development, management and admin. (Customer services and support are handling your recurring revenue, coming years, so here both cost and future revenue is excluded), 

 

Without going into any great detail on what may the case in your company, it will probably be a good rule of thumb to think that – If you sell for about 4-5 times the average sales employee total cost to the company, you are all right.

 

The real cost of any employee is around 1,5 – 2 time the salary, this way including social security fees, indirect taxes, the office space you use up, medical insurance, meal tickets etc.

 

Example

 

As an example, if your salary is 60kEUR, your total cost is around 100kEUR, and the reasonable quota is 450kEUR-600kEUR . If your salary is 100kEUR, you should not be surprised if your quota is 800-1.000kEUR. Why?

 

Why is 4-5 times your cost, (or 10 times your salary) a good rule of thumb?

 

  • One is to cover your own cost to the company
  • One is to cover other direct new sales costs, Presales activities, free Consultancy, proofs of concept, development adaptations etc
  • One is to cover other overhead and indirect sales costs, your sales director, your marketing personnel, a part of admin, all more or less involved in new sales. 
  • Between One and Two is to ensure some margin, because during the year one or more of your colleagues will not make their quotas, they may leave, the market was not good in their territory etc. 

Needless to say, this is a very coarse estimate and way to think about quotas. In the companies I have worked I made sense for me and my team, under the circumstances I described above. If the market is bouyant, and your company is very agressive in marketing, for example, then your quota could and should be significantly higher. If the company is spending wast amounts of marketing, you job gets a lot easier, but at the same time the money you need sell to cover for the marketing team will increase.

 


 

For industrial products? 

 

The same reasoning, but here we think that the total cost of sales plus any extras  must be covered by the internal product margins, the contribution margin from your unit. 

 

Example 

 

You sell industrial equipment that is produced elsewhere. The cost when delivered to your warehouse is 65% of List Price, leaving you with 35% to pay for your teaming cost of sales. 

 

Let us assume that the sales effort is the same, one salary for you, one for Presales and other sales support, and one for management overhead and office etc. Add one for internal margin. 

Your pay is 60k€/year – or total cost 100k€ per person. That makes 300k€, plus internal extra of 1-200k€.  Total cost/internal margins from factory =  400k€/0,35 = quota of 1.143k€

The pure cost is 300k€, so if you sell for less than 300k€/0,35 = 857k€ your local unit will present losses! 

 

Trust is a must – Personal styles, DISC, and matching in sales

 

In other posts, we discuss sales techniques and methods on selling value. To sell value, and be able to charge extra for that value, the value must be fully perceived… felt.. by the customer. Whether we get across with our message or not is influenced by our styles, our behaviors in different situations, and how well we fit.  Sometimes this personal fit is simply referred to as the personal “chemistry” between people. Let’s have a look!

 

Trust – a must

 

When we meet new people, our brain reacts by asking two questions immediately and subconsciously. The first is about how we will communicate – considering openness, warmth, and trustworthiness, and the second is about competence and knowledge. “Is this someone I will get along with and trust?” and “Is this someone I can respect and understand?” Entering into a personal relationship with the person, the first always trumps the other. If we don’t feel we will get along with the person, the competence dimension becomes irrelevant.

 

In sales, it is generally the customer side that determines the level of trust that is needed in the relationship for the sale to take place.

 

To generate trust, we need to do the following:

  • Understand how others perceive and appreciate our behavior
  • Know how to read the behavioral style of our customer
  • Learn how to adjust our style to the customer

 

There are many models and tools that help us understand styles and behavior. But few are as simple and as well documented as the DISC model. The reason why the DISC model is so suitable to apply on sales is because DISC simplifies the reality and allows us to take quick decisions.

 

 

The DISC model

 

It is out of the scope for this manual to provide all the details of the model, but we encourage the reader to learn more about the theory and the tool to gain a good understanding of the personality styles and how to adapt our behaviours.

 

The DISC model dates all the way back to the 1930s and is based on William Moulton Marston’s findings and thinking. Although far from complete, it provides some basic insights into our ways and how it is likely that we react and behave in certain situations. It is one of the most used instruments, and while it does not really measure or evaluate personalities, it does describe basic human behaviors.

 

 

 

 

The DISC model identifies four different behaviour styles (D. I. S. and C). Too make the model simpler and more accessible, it uses individual color codes for each style, and tells us four different ways in which we usually react to a given situation.

 

D – DOMINANCE STYLE (RED) :

 

People with a dominant style in their base behavior will see themselves as strong in a non-friendly (e.g., professional) environment. This is why they tend to try to dominate the situation and the meeting. They are straight forward in their ways, not afraid to speak their mind, and find it easier than many to see how to overcome different obstacles. They are challenge driven and goal oriented. They are willing to change, but normally only if they think it can help them to get what they set their mind on. A dominant style person will perceive himself as powerful, energetic, innovative, goal oriented, and resolute. By others they are perceived as arrogant, pushy, aggressive, and insensitive.

 

I – INFLUENTIAL STYLE (YELLOW) :

 

Individuals with a strong influential style will see themselves as strong in a naturally friendly environment. In general, they feel they have nothing to fear from the environment and people around them. Therefore, they want discuss things, have others share their opinion, and try to influence them through friendly persuasion. Their primary goal in any situation is to be understood, accepted, and involved. A person with high yellow will see himself as convincing, confident, generous, inspiring, and open. By others, this person can be seen as selfish, superficial, egocentric, and unserious.

 

S – STEADY – STABLE STYLE (GREEN) :

 

People with a predominant stability style often see themselves as weaker than others, and when given the choice, they prefer to be in a friendly and conflict-free environment. They are concerned with not upsetting or changing this environment, and they want to preserve it to continue to feel safe and good about themselves. On the other hand, to change, they must first be convinced that they don’t risk losing anything at all. As a salesperson, this style is often perceived as a bit passive with difficulty getting to a close with the customer. A stability-style person will perceive themselves as loyal, a good-listener, encouraging, and calm. But at the same time, others can see them as stubborn and reluctant to change.

 

C – COMPLIANT STYLE (BLUE) :

 

A strong compliant-style person tends to think that their surroundings are generally hostile and thus they feel weaker. Because of this perceived weakness, they don’t exercise much influence. They tend to prefer working by themselves and take great care to fit into existing and predetermined structures and rules to reach their goals. To avoid risk and conflict, they will analyze each situation carefully before deciding to do anything that would change the given structure. A person with high blue will see him/herself as fact-seeking, knowledgeable, systematic, diplomatic, and reflective. On the other hand, this person can be perceived by others as pedantic, avoiding, indecisive, and reserved.

 

 

Interview candidates with a purpose – free template

If you are a bit new to recruiting and interviewing, and feel you could use some basic tips and tricks, continue reading. As with most things in sales management, putting a little structure and thought behind your recruiting will enhance your chances of selecting the right person and getting off to a great start as a manager.

In this article, we have put together some general guidelines and tips to help you prepare for your interviews.

 

 

Who do I want to work with?

The first area to spend some time on is to define what is truly important for the role.

 

HARD SKILLS

We all understand the importance of understanding your advanced technology, or that the candidate has a great network, is extremely experienced, and is young, hungry, and full of energy. We can call these the “hard” skills. They are often tangible, more easily measurable, and 9 times of 10, they are what managers I talk to mention as the most important criteria when recruiting.

On the concrete or “hard” competencies, you will want to evaluate the candidates

  • market knowledge and network in the territory
  • product and technology understanding
  • sales skills/technique competencies

 

SOFT TRAITS

Very often the “soft” abilities are passed to a second plane. They are more difficult to define and measure, or even to talk about. Yet, they are key to a successful transition into your team and to reach productivity.

In the LinkedIn State of Sales Report 2020: U.S. Edition, 500 buyers and 500 salesreps/managers were asked what 10 characteristics buyers desire from salespeople compared to the characteristics sales managers look for in the sales reps they hire. Buyers ranked active listening, problem solving, confidence (trust), relationship building and communication skills as the top 5 traits. Technology understanding, years of experience, and industry expertise came lower.

During your interviews, pay special attention that the candidate:

  • will adapt to the context and support network you have in your company
  • will learn well and can adapt to ways of working
  • is open to change
  • will fit in your culture, making it easy to work together
  • shares similar values, and will subscribe to the corporate values

 

Recruiting the right person to the wrong place

 

There are only too many examples of great salespeople – absolute top performers who are recruited into a different context but selling something very similar to the same people – who still failed to succeed or even get close to the previous success. The “hard” competencies all fit. Product/technology, market/industry, contact network, and demonstrated sales methods and techniques were all “check!” yet they failed. Why?

 

What happens is that the soft abilities and cultural fit just don’t align with how your team and company work. This is everything from your internal team dynamics, culture, and jargon, but also misalignment with the expected surrounding support, HR, pre/tech sales, support, services, marketing, etc.

 

 

Two classical scenarios:

  • The medium sized company who decides to open a new sales office in a new country/market, and hires a top manager from the incumbent competitor for the job. This is always a bad idea, as the first person in the market needs to do all the work themselves initially, and there is no support network yet.
  • A large corporation that hires people from startups often finds it difficult to accommodate the new hire’s appetite for creativity and room for own decisions, and the employee often feels hindered and suffocated under all the processes.

Note that we are not saying one is better than the other, but as hiring managers, we must be conscious of our own ways, culture, and values, and we must be sensitive to which candidates will fit in our context.

 

 

The Process

 

DEFINE KEY EVALUATION CRITERIA

 

Make sure to complete the “hard” job descriptions with the most important “soft” characteristics you are looking for. Then design an interview template that helps you evaluate the candidate in all these dimensions. You can download a simple template by clicking the button below.

 

USING TESTS

The more important you deem the values, culture, and other “soft” skills for the role, the more you may want to consider a personality test. Make sure you prepare your interview well and focus on these areas. If you are using an agency, they can often set up a DISC test or something similar for you.

If the job requires technical skills, set up a test that your candidate needs to solve, or ask them to prepare a convincing sales meeting if recruiting telesales.

 

MULTIPLE INTERVIEWS

Have at least 2 people apart from yourself interview the candidate throughout the process. Let them meet with different personalities and roles to catch possible moments where non-desired behaviours come up to the surface. You will get a much more complete picture of the candidate. After each round, set up a debrief with the interviewers, and run through the evaluation criteria.

 

 

Interview template

To help you structure the interview, we propose a simple template that you can follow. It should not be a questionnaire, but list the key competencies and personal traits you will want to evaluate.

Use it as a support to help you formulate questions and conduct the conversation so that in the end, you feel confident all areas were covered to your satisfaction. The questions in all cases being:

  • “How well/badly do I think the candidate will be doing……?”
  • “Will the candidate be strong enough in ……..?”
  • “Is the candidate motivated and able to learn this ……. quickly”

 

 

Download template

 

Prepare by thinking through each area, and note what specifics you want to know, and how to formulate the question to get the answers you need.

Remember to ask for relevant references, and complete the interview by contacting those references.

 

Onboarding for growth

The importance of a great Onboarding

 

Studies show that employees give their new companies about 6 months on average before they decide whether to go all in with their new employer. At the same time, other sources point to a learning curve and time to full productivity of a year or more and at least one full sales cycle. In a culture where success often is made synonymous to revenue and sales numbers, new salespeople risk losing interest and enthusiasm long before success and hitting their numbers.

 

The combination of high expectations, a long ramp up/time to sales, together with short patitence of both the new employee and the organization becomes an explosive cocktail of high attrition on new hires, with stagnated growth as the most severe consequence.

 

The onboarding program helps mitigate the effect by

  • Shortening the learning curve and time to productivity.
  • Redefining and widening the term success, since activity metrics, competence development and personal growth are also considered successes along the way.
  • Keeping people interested and motivated from the first day and throughout the learning process.

 

A great onboarding program helps new hired individuals perceive and appreciate the company’s effort to develop and grow them so they are more likely to return the favor by staying on and being more motivated.

 

 

Defining what is important

 

We have prepared a template for a 12-month onboarding plan, where we have selected some standard areas for sales reps in a complex technology sales context. Use this as inspiration to create  your own plan. Consider what is truly important in your company and context.

 

Some things you may want to include are listed below:

  • Market and ecosystem understanding
  • Contact network
  • Customer understanding
  • Product and technology
  • Personal traits
  • Values and cultural fit
  • Sales technique
  • Sales process and strategy
  • Tools and methods

 

A structured approach to competence management is helpful throughout all phases, from recruiting to the periodical evaluations. What you do the initial evaluation, already in the recruiting phase, and construct a initial training program to cover any weakness you discovered, we call it our Onboarding Program.

 

a simple onboarding plan based on competence areas helps providing structure

Onboarding program for a Sales Person

Below is a template to use to create your own onboarding program. Fill the boxes with the training, meetings, and activities that your new hire should plan to do within different time horizons. To help you organise your thoughts, go area by area, one by one, and fill in the boxes. You may be surprised at the end by the quantity of activities the new hire needs to do to get up to speed. Keep this is mind when you set the expectations for sales and productivity for the fist couple of months!

 

Many of the activities, sucha as “getting to know the company,” need to happen early on, and others will be more evenly spread out over the year. We suggest you stage the learning in the following time categries:

  • Immediate (< 2weeks)
  • 1stmonth
  • 3 months
  • 6 months
  • 12 months

In each area, you may also want to add success criteria or milestones that you can check off and celebrate with your hire as they make each one. Click below to download our onboarding template.

 

 

Download template