MEASURING SALES PERFORMANCE: PITFALLS AND OPPORTUNITIES

On November 8th 2012, The Sales Association in the US hosted its National Conference themed “It’s About Performance – The Science of Sales”. Sales Performance is not just a current topic but also one that affects most sales organizations, since virtually all have systems to measure and manage sales performance. It is a widespread practice, however one that does not necessarily follow the suggestions from sales science and in particular the insights emerging from the growing research evidence in business and organizational performance and management control systems.
The types of sales performance measures used in businesses depend on the nature of their sales process and their internal requirements. The selection of sales measures also depends on the maturity of CRM and sales automation solutions that enable to capture, analyze and exploit performance data. What only few organizations realize is that the complexity of sales performance measures go beyond the difficulty of the gathering and the reporting of data. There are a number of factors that make measuring sales performance problematic.

THE CHALLENGE OF SALE PERFORMANCE MEASURES
In many contexts, the achievement of high levels of sales performance and marketing effectiveness depends on the identification and implementation of customer management practices which outcomes are not immediately or quantitatively measurable. Yet, stakeholders’ demands often lead organizations to implement a plethora of sales and marketing measures without recognizing the limitations they may have such as the following.

The ‘end’ – ‘means’ paradox
The aim of measuring sales performance is to improve sales performance. This statement seems obvious and even redundant. However, many organizations design and roll out performance management systems and achieve precisely the opposite to enhanced performance. When sales people are ‘subject’ to a set of strict measures they engage in the behaviors to deliver against those measures. They perform activities without questioning the extent to which these activities add value to the customer and generate sustainable returns.

Linking measures with quotas
The potentially negative effect of having sales measures may become largely dysfunctional when measures are linked to targets or sales quotas. Sales targets are often perceived to be unachievable, and evidence shows that this results in negative effects for both salespeople’s trust in the organization and their very own sales performance. Targets can be perceived as unachievable if they result from the combination of inaccurate forecasts with pressure to achieve above the market growth. The recent economic crisis has questioned many organizations’ ability to reliably predict demand and even if prediction is accurate, fast changing customer and consumer expectations render many forecasts invalid.

The complex nature of measures
Organizational phenomena, including sales performance, are by its very nature complex, interconnected and often subjective. Therefore, most attempts to measure ‘performance realties’ will be, by definition, limited. Sales managers need to be aware of certain characteristics of most sales measures such as:
• Imperfection: Some measures do not capture critical business development practices, thus resulting in the phenomenon known as “hitting the measure but missing the point”. For instance, many organizations measure conversion rate overseeing the ‘quality’ of those conversions. Equally, managers may focus on ‘number of new customers’ failing to scrutinize the quality and potential of such customers. The latter may be an ‘imperfectly objective’ but more meaningful measure than the former.
• Stickiness: once sales measures have been accepted they become uncontestable, thus promoting activities to increase a measure that may be no longer be relevant, such as market share in highly volatile markets or sales by geography when dealing with global accounts.
• Conflicting roles: some measures that are useful as strategic information provision (i.e. decision making), are used for reward and compensation purposes. This induces distortion and manipulation of the metrics, like sales per customer segment.
• Inconsistency: overtime, the validity of measures decreases. Measures will loose informativeness as individuals ‘learn’ what needs to be done to achieve the measure, so they no longer reflect the true performance of the sales and marketing organization.

KEY GUIDELINES FOR IMPLEMENTING SALES MEASUREMENT SYSTEMS
Measuring sales performance is a necessary but not sufficient condition to significantly drive performance. It is virtually impossible to design the perfect sales performance measurement system. However, the following guidelines may help in identifying and using measures to bring about the best possible sales performance.

Use insights to create value
Sales performance systems should be seen as an investment, in that sense, the value of the insights that can be derived from them should supersede the cost of obtaining the metrics. Sales measures are powerful mechanisms to enhance strategy execution when coherence and alignment with the overall sales and business strategy are achieved. It is well known that data by itself will not create value. It is the contextualization of the data what triggers the emergence of information. When absorbed, this information becomes knowledge, and when used to inform decision-making and resource allocation, a source of advantage. Key questions for managers are ‘do we get value from measures that supersede its costs?’ and ‘to what extent we use the insights derived from the measures?’ if not, ‘why do we gather them?’

Focus on relevance rather than accuracy
Given that sales performance is a multifaceted and imperfectly measurable phenomenon, measures are rarely perfect. Efforts to obtain exact indicators in sales and marketing organizations will often be futile. A more realistic and fruitful endeavor is to define measures that capture essential sales processes that are sensitive to the specific context, and mindful of the customer’s needs and expectations in that sector. Relevant sales measures often balance the need of short-term accomplishments with the desirable long-term performance. A key question for managers is: ‘Do our sales measures serve the purpose they intend?’ and ‘is the data good enough for that purpose?’

Emphasize flexible connectedness
Markets across sectors have become increasingly unpredictable and volatile. Paradoxically, organizations often define measures with tight performance expectations (i.e. quotas and targets). This apparent contradiction can be reconciled by defining composite measures for certain expected results, to immerse in the day-to-day work of sales and periodically review performance in those key measures. Control charts can be used to determine if a sales process is within the desired parameters or whether further investigation is needed to understand results out of the control chart. The resulting question for managers is: ‘Are the connections between our measures, targets sufficiently flexible?’

Foster meaningfulness
Sales professionals are often regarded as solely driven my extrinsic motives. This claim is mistaken, and most sales professionals will show high levels of intrinsic motivation as well. Managers can stimulate both sources of motivation and channel them towards higher levels of effort and performance, by increasing the significance of the sales endeavor. Explaining the rationale of the chosen measures, exploring effective approaches to accomplish them, negotiating realistic targets and agreeing how to achieve them will all increase the meaningfulness of the sales performance measurement systems. A key question for sales managers is ‘how do our sales measures promote a meaningful sales job’?

Promote efficient resource allocation and organizational learning
Measuring sales performance should inform prospective resource allocation as well as a retrospective organizational learning. Prospective resource allocation means decisions are informed by opportunities surfaced by comparing internal measures with relevant external data. Retrospective organizational learning is linked to questioning over or under performance, promoting an open and critical discussion about the organizational setup and the sales process design, surfacing organizational vulnerabilities and rigidities.

CONCLUSIONS
Selling and customer management processes and practices are by their very nature complex and highly interactive. Data is rarely purely objective since we all use prior frames of reference and rely on assumptions to make sense of performance data to turn it into information. Moreover, sales and marketing managers often believe in the misguided motto of “what you measure is what you manage”. Customer experience is critical in many contexts, yet is difficult to measure as it is driven by subtle, intangible factors that may observable but imperfectly measurable. This does not impede organizations such as Singapore Airlines or BMW to manage their customer experience exquisitely.

Managing sales performance data strategically is increasingly becoming a source of advantage and a key foundation for creating winning sales teams that are focused in engaging valuable customers, with relevant offerings, through pertinent channels and approaches. Selling has evolved to become a highly situational profession where adaptability and customer centeredness differentiates moderate from high sales performance.
Sales leaders and managers in organizations can use sales performance measures as key mechanisms to implement and communicate the business vision, inform decision making, allocate resources and align sales behaviors with the overall sales strategy. To ensure that sales performance measurement activities ultimately result in improved performance the above evidence-based principles need to be considered. At the end of the day eight decades of ‘Science of Sales’ have generated much insight ‘About Performance’.