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Complexity of Sales Productivity

by Dave Egloff  |  June 10, 2019  |  Submit a Comment

Seller productivity is a popular metric for many sales leaders. Simply stated, sales productivity can equal the revenue generated by the seller’s book of business.  However, as sales organizations evolve and sales roles expand, productivity metrics become complicated.

Here are a few wrinkles that may pose a challenge:

Team-based Selling

How do you measure seller productivity if more than one seller is dedicated to a territory, or accountability is shared in a matrixed relationship?

 When more than one seller is being held accountable, the sales performance measure – typically revenue – must be divided by the number of sellers involved.  In a simple example, if two sellers are supporting a strategic account or a territory, the revenue should be divided by two.

In complex scenarios – like matrixed organizational structures with shared accountability or overlay sellers – the math is tricky.  Some organizations opt to ignore the complexity and calculate productivity as though only the direct sellers were involved.  This is simple but not accurate.

Other organizations devise a more accurate approach by prorating matrixed or shared resources by the time allocated to specific opportunities or territories.  This is a more accurate approach but requires additional analyses.

Hybrid Role Designs

How do you calculate productivity for a seller who is growing existing accounts and acquiring new customers?

Calculating sales productivity for hybrid sales roles may not be simple or straightforward.  Too often, sales leaders have a bias in their productivity calculation approach that favors hybrid sellers with a larger book of business.

As an example, many hybrid sellers get credit for a mix of new and recurring revenue.  If all revenue counts equally, sellers assigned to larger books of business will look like the most productive sellers.  If this is the case, sales leaders may want to challenge the definition of sales productivity.

Side note: Sales productivity should be calculated differently from total revenue attainment.  While total revenue may be great for quota attainment and commission calculations, sales productivity should show what the seller produced – i.e. what were their sales contributions – this year.  Recurring revenue is the result of a prior year “buy decision.”  It could be argued that recurring revenue pollutes seller productivity metrics even if it is a good measure for compensation purposes. 

For hybrid sellers, net changes in recurring revenue and new revenue should be used to calculate sales productivity.  This approach better measures the seller contribution, as opposed to reflecting the book of business that was assigned.

Up-selling and Renewals

 How do you calculate productivity when an up-sell transaction or renewal replaces a previous revenue stream?  How should productivity change if a $400k renewal replaces a previously sold $500k contract?

There are many ways to address the impact on productivity when a new sale cannibalizes an existing revenue stream.  Some organizations calculate productivity using a “net result” approach.  In this case, the $400k renewal has a negative $100k productivity impact.  The justification is that the revenue stream and the organization lost $100k, so the seller’s productivity metric should also take a hit.

Other organizations engineer a different result by using a weighted or prorated approach based on the revenue type.  New revenue may get weighted to increase the impact on productivity, while recurring or renewal revenue may get prorated to reduce the final productivity result.

It is best to keep things simple.

  • For renewals – give sellers full credit for all renewal decisions. If the buyer had the ability to walk away but instead renewed their contract, this is a good outcome.  The seller’s productivity should increase from this outcome.
  • For up-sell transactions – given the seller an incremental lift to productivity equal to the additional revenue over the prior revenue stream.

As a reminder, productivity metrics and compensation measures are not one-in-the-same.  Organizations could approach productivity and compensation calculations uniquely as long as they reinforce the same principles.

 

Unfortunately, sales productivity complexity may frustrate and deter some sales leaders from using this data to improve sales outcomes.  Sales productivity is a key metric to drive better sales results, recognize top performers, and evaluate sales headcount investments.  Despite being nuanced, creating a good sales productivity metric is worth the effort.

Category: sales-intelligence  sales-operations  sales-performance  sales-strategy-and-design  

Dave Egloff
Senior Director
1 years at Gartner
20 years IT Industry

Dave Egloff is a Senior Director, Analyst in the Gartner for Sales Leaders practice. His current work focuses on key initiatives in sales strategy, sales operations and sales compensation. Read Full Bio




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