Sales leaders examine seller performance in distinct ways. Two common methods include using either an absolute or relative approach.
Absolute Sales Performance
Absolute sales performance is the simplest approach where objectively more is better. Comparing two sellers, the better performer is the one that produces more revenue. The key assumption is that both sellers had an equal opportunity. Here is a simple example:
Unfortunately, sellers — even in the same company — can have a different opportunity based on their territory size, vertical or geographic location. A relative performance approach effectively smoothes out these potential differences.
Relative Sales Performance
Relative sales performance compares results to a target — quota attainment is an example of a relative performance metric. Going back to the previous example, let’s add more details about Sellers A and B. Imagine Seller A was in a large, fast-growing territory while Seller B was in a small, slow-growth territory. Seller A produced more revenue but had a much higher sales target. You can now conclude that Seller B was the outperformer.
The simplicity of using absolute performance is attractive. However, sales performance triggers rewards and recognition. Sales leaders may struggle to reward sellers simply because they were assigned a great territory. Instead, leaders should pay their sellers based on how much (or little) they met expectations.
Setting quotas is another factor to consider. Unfortunately, it’s hard to ignore the challenge with setting quotas. To avoid quota setting, sales leaders can opt to follow an absolute performance approach. However, work still needs to be done. Instead of setting quotas, sales and sales operations will be focused on designing equally-sized territories. This is definitely not a simple task. In fact, in many ways, this is tougher than setting quotas.
Identifying a Need for Change
Absolute sales performance approaches are great for maturing sales organizations. Sales leaders can recognize when change is needed by tracking:
- Territory Size – as the range of territory sizes spreads, relative performance becomes more equitable to sellers than absolute performance.
- Correlation between Pay and Territory – if commissions become correlated to territories, relative performance should replace absolute performance. Sellers should get paid based on their contribution and not territory assignment.
- Seller Feedback – if sellers are discouraged because of a lack of opportunity, this is a red flag that needs to be addressed. Sellers need to perceive fairness, and relative performance practices are a great mechanism to consider.
Ultimately, as sales organizations mature, the move to relative performance is a matter of when… not if. Sales leaders can get ahead of this development and be thoughtful about how and when to make the change. Specifically, they should get ahead of potential issues and consider the ripple effect on management topics like performance management, coaching, and compensation.
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