Company Challenge
The company is a fast-growing public technology company. It has more than 500 sales representatives with account executives (AEs), channel account managers (CAMs) and inside sales representatives. The company deploys one solution engineer (SE) for each field-based role. The company believes this structure helps drive sales as SEs are critical in explaining the business value and technical details of emerging storage solutions, a new product category unlike traditional storage solutions. It operates a “land and expand” model. Field representatives initially focus on landing new logos and then expanding sales when accounts transition more storage to emerging storage from traditional. This drives profitability over customer lifetime.
Project Approach
The company is in a market share race. It needs a scalable sales model to help manage growth and complexity. Building a scalable model requires developing processes, updating programs and implementing automation solutions based on current and future needs. The company wanted Alexander Group to help answer the following key questions.
Sales Model
How does the company’s cost of sales compare to other high-growth companies? Is the company achieving reasonable sales productivity levels? How do the company’s roles and deployment ratios compare to peers?
Sales Compensation
How does the company’s sales compensation plans compare to similar high-growth technology companies? How can the company ensure simple sales compensation plans that align to the business objectives and the roles, to drive the right behaviors?
Alexander Group delivered a sales cost benchmark report and new fiscal year sales compensation plans for key selling roles. In addition, Alexander Group provided communication and rollout material.
Key Findings
Industry Profile
The company operates in a rapidly expanding and fast-changing industry: emerging storage solutions. Companies are moving away from legacy storage to emerging solutions given higher reliability and faster access speeds. Growth of internet media and cloud companies are other drivers of increased storage needs. The total market was
expected to grow to $230B.
The company has multiple competitors. The first set, traditional large storage system vendors, offers a broad range of storage systems targeting various use cases and end markets. The second set, large systems companies, has acquired or licensed specialist storage technology to add to its in-house solutions. Additionally, competitors are now building solutions and selling directly to end-users. In the past, they provided storage components to original equipment manufacturers (OEMs). Finally, numerous startups are developing innovative solutions targeting specific-use cases. Emerging storage solutions are starting to become plug-and-play but still require installation and setup assistance.
In the emerging storage solutions industry, key business performance metrics include number of new customers (logos) and overall revenue (bookings). Companies in the startup growth phase focus on revenue growth at the expense of profitability as penetration typically leads to increased adoption followed by profitability–the land and
expand model.
Products, Customers, Coverage and List of Jobs
The company sells to a cross section of customers: government entities, such as federal, state and local governments, education departments, large enterprises, small and medium businesses.
The company leverages its channel partners for sales, distribution and installations. In addition, the company has an in-house professional services team to manage installations and to train customers. Key selling roles include AEs who sell direct, and CAMs who manage channel partner relationships. AEs may sell with channel partners; CAMs have minimal interaction with the end customer. SEs provide technical support and are assigned to either an AE or CAM.
Jobs
Account Executive — Hunter
Hunts for new accounts and transitions account over to farmer within a defined timeframe (six months). Responsible for bookings in the first six months of new account.
- Bookings
- New logos
Account Executive — Rancher
Hybrid hunter and farmer. Deployed in relatively smaller markets where it is unfeasible to deploy both a hunter and a farmer.
- Bookings
- New logos
Account Executive — Farmer
Focuses on maximizing revenue potential at existing customer base. Deployed in large markets where hunter role is also assigned.
- Bookings
Channel Account Manager (CAM)
CAMs manage existing channel partners and focus on enabling partners to sell.
- Territory bookings
- Territory new logos
Sales Engineer (SE) — Hunter, Rancher, Farmer or Channel
SEs provide technical expertise (primarily pre-sales) and are typically paired 1:1 with their selling partner–AE or CAM.
- Bookings
- New logos (if applicable)
Corporate Account Development Manager (CADM)
Focuses on install base in the corporate segment (lowest tier). Only deployed in select mature territories where CADM along with paired SE and channel partner can manage the book of business without AE support.
- Bookings only as new logos in this tier do not result in significant repeat purchases
Sales Development Representative (SDR)
Inside sales representative focused on generating a pre-qualified opportunity (lead).
- Tele qualified leads (TQL)
Project Recommendations & Outcomes
The company has had an amazing growth story—its products are well received in the market with a customer stickiness exceeding 90%. It has invested significantly in the sales organization to drive new logos and sell the company’s cutting-edge technology, helping grow topline revenue and gain market share in the emerging storage solutions industry.
Alexander Group identified the following key area strengths.
Eligible Roles on SIP and Pay Mix Aligns with Market
- Only eligible roles on sales incentive plan.
- Pay mix in line with market practices.
Plans Consistent Across Roles
- Similar compensation plan across roles is simpler to plan, communicate and manage, especially during the startup phase of a company.
Performance and Payout Periods Are Appropriate
- Annual performance period aligns with sales cycle for most roles.
- Quarterly accelerators provide some motivation for reps to drive linearity.
- Monthly payouts provide appropriate cash flows, in line with market practice.
Mechanics and Pay Curve Highly Incents Top Performers
- Accelerators in plan that increase with performance are highly motivational and ensure high payout for top performing reps.
- Uncapped plan and lack of decelerators provide incentive to overachieve.
Alexander Group also shared issues related to sales roles and sales compensation along with recommendations.
Plans Need to Change as the Evolving Selling Environment Requires Different Selling Roles
- Same compensation plan, with similar new logos goal for enterprise versus commercial AEs a concern, given the difference in total addressable market.
- Not enough differentiation across roles, e.g., CAM has new logos and region bookings as measures, very similar to AE and SE (different weights).
Job Roles and Coverage Levels Will Likely Need to Evolve to Reflect the Company’s Future Coverage Strategy
- Lack of hunter versus farmer type AE roles lead to difficulty in executing sales motions; other hardware and software companies at this stage of development have bifurcated roles.
- 1 SE:1 AE ratio could be driving high cost of sales.
- CAM currently plays multifaceted role and may need to evolve as channels become more self-sufficient; also need to rationalize ratio of one CAM to six to eight AEs.
Quota Setting Must be Better Aligned with Segment Opportunity
- Misalignment between quota setting and opportunity within enterprise and commercial segments leading to inequitable payouts and potentially contributing to high cost of sales.
The Company Should Focus on More Consistent, Deeper Communication to Ensure Reps Understand Plan Changes
- Significant concerns around communication of plans and promotions.
- Reps confused about several ongoing and evolving promotions.
Alexander Group Recommendations
For the AE, Alexander Group recommended three roles: hunter (only focuses on new logos), farmer (mines existing accounts) and rancher (hybrid role that does both hunting and farming).
Alexander Group developed tailored compensation plans: Hunters and ranchers had new logo requirements, while farmers did not. Additionally, Alexander Group put together quotas and rate table for new logos specific to each role and market segment.
Finally, Alexander Group recommended giving CAMs credit on all sales through their channel partners, including the company AE sales, and to proportionally increase CAM quota. In the past, the company incented CAMs on channel led (CLED) sales. Alexander Group’s biggest concern was channel conflict between AEs and CAMs on who gets credit for the sale—less cooperation/collaboration. Additionally, the company needed to clearly define and measure CLED booking to minimize double payment to AE/SE and CAM for same sale. Move to territory credit removes this conflict.
Alexander Group recommended best practices, such as multiple communication channels, to ensure reps understand comp plans and promotions.
Alexander Group won this add-on work and delivered well-received communication and rollout material. Additionally, Alexander Group developed a cascading communication plan for the company to ensure the right person communicates the right elements of the updated sales strategy and new sales compensation plan.
New logos rate table for AE–hunter. Excellence for new logos is typically 150% of goal, i.e., if target is six logos, excellence is nine logos. At target, weight of this measure is 60%, but less than 40% at excellence as bookings measure accelerates faster beyond goal. This was by design. Otherwise, payout per logo would need to be extremely high, exceeding $60K per new logo at excellence.
Finally, Alexander Group also offered advice on additional topics, such as designing a windfall/bluebird policy and driving order linearity.
Performance Metrics
Bookings
Definition: The amount of the product and/or service recognized by company pursuant to the worldwide financial revenue recognition policy that is credited to an employee for purposes of calculating commission advances and/or bonus payments. When an order has been booked, the employee responsible for the booking ordinarily receives booking credit equal to the amount of the purchase order value.
Importance: The company wants ranchers and farmers to maximize sales potential at each account.
Unique Issues: Sales representatives may primarily focus on the top accounts to achieve and exceed the bookings’ goal and less on driving growth in all accounts.
New Logos Bookings
Definition: The amount of the product and/or service recognized by the company pursuant to the worldwide financial revenue recognition policy that is credited to an employee for purposes of calculating commission advances and/or bonus payments. When an order has been booked, the employee responsible for the booking will ordinarily receive booking credit equal to the amount of the purchase order value. Only bookings from a new customer qualify.
Importance: The company wants to incent hunters and ranchers to not only focus on getting new customers but also on maximizing sales potential at each new customer.
Unique Issues: How long does a hunter get credit for a new customer booking before transitioning account over to a rancher or farmer?
New Logo
Definition: A new logo is a net new customer to the company (globally or regionally) that has never purchased an emerging storage solution. New divisions or subsidiaries that are more
than 50% owned by an existing customer do not qualify as a new logo.
Importance: New logos are critical to drive growth in a land and expand model.
Unique Issues: Quality of new logos may be suspect if representatives are solely incented on new logos without additional qualification criteria, such as customer potential.
Tele Qualified Lead (TQL)
Definition: A pre-qualified opportunity generated by the inside sales representative conforming to the following criteria: the prospect has agreed to a meeting, the account name, contact name and contact phone number is in the CRM database, the prospect’s needs and decision timeframe is known, environment qualified, and the company sales employee has verified and accepted the TQL in the CRM database.
Importance: Qualified leads are critical for growth in a land and expand model.
Unique Issues: None.
Participation Rate
Definition: Measured for each first-line manager; percentage of sales representatives he/she manages who hit target.
Importance: Want the first-line managers to focus on majority of sales representatives and not just ride the top accounts to success.
Unique Issues: Managers may perceive this as micro-management.
Alexander Group has helped thousands of clients.
Our expert leaders assess, align, design and implement powerful sale compensation programs. Alexander Group has helped organizations realize the full benefits of effective sales compensation programs to attract, retain and reward best-in-class sales talent to profitably grow the business.
We can help with all elements of your sales compensation program.
About Alexander Group
Alexander Group understands your revenue growth challenges. Since 1985, we’ve served more than 3,000 companies across the globe. This experience gives us not only a highly sophisticated set of best practices to grow revenue—we also have a rich repository of unique industry data that informs all our recommendations. Aligning product, marketing, operations and finance efforts behind a successful sales organization takes insight and hard work. We help the world’s leading organizations build the right revenue vision, transform their organizations and deliver results.
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