To perform at a high level, sales teams need sales incentives. But the wrong incentives can do serious damage to your customer experience and to your business as a whole.
Tell your reps they'll be judged on the revenue potential of the deals they bring in and suddenly your deal volume grows exponentially. You're bringing in new customers faster than you can onboard them. But soon you realize that those customers—despite their impact on the top line—aren't good fits at all. They churn en masse, sending your books into the red and tarnishing your reputation.
Traditional metrics typically incentivize quick, unsustainable wins because the focus is on the numbers, not the customer. You will end up with burned-out reps and unhappy clients, and the metrics won't reflect your actual results.
Customer-centric metrics, however, can incentivize sales reps to focus on bringing in the right customers, build valuable customer experiences, and create sustainable growth.
Let's take a look at six misaligned and aligned sales incentives: what metrics influence these incentives (traditional vs. customer-centric), how they work, and why they are effective or not.
Misaligned sales incentives
Misaligned sales incentives can be influenced by metrics that don't have a clear purpose related to your overall strategy. The traditional metrics covered here are not inherently bad — they're just used incorrectly, which causes distorted behavior. Sales leaders often focus on traditional metrics because they are easier to measure and track.
The fundamental problem with these metrics is that the attention is placed backward rather than forward. They are generally lagging indicators — indicators that measure overall results and are easy to identify but can't really be changed because the events already happened.
Overall activity, sales cycle, and win rate are three examples of traditional metrics that look in the rearview mirror. They might be efficient but aren't typically effective because sales reps are motivated to achieve quick results.
1. Sales Cycle
The sales cycle looks at how long it takes for a deal to go through the stages of the sales pipeline. It can be a strategic metric if used properly, such as for improving the sales processes or understanding different customer segments.
Average Sales Cycle: Average (Close Date – Created Date) for All Deals
But too many sales managers push how fast their reps can shorten the time-to-sell period. It's a cause-and-effect case. The faster reps try to shorten the cycle, the longer it can get if a buyer's needs are not aligned. Pushing a potential buyer to purchase can permanently damage a future relationship with the company.
2. Overall Activity
Activity metrics track the number of sale activities and revolve around hitting the numbers. While these metrics do show the daily output of your sales reps, managers and reps get so caught up in hitting the quotas that they overlook the overall customer experience.
Specific activity metrics can be defined as:
- Number of calls made
- Number of emails sent
- Number of meetings scheduled
- Number of proposals sent
Let's say you set your call quota to 50 calls per rep, per day. As your sales reps feel pressured to meet these specific numbers, the quality of the conversation with the customer decreases. The focus is on the number of customer interactions rather than on meaningful conversations.
When you add up these daily activity metrics (email, calls, meetings, live chat, etc.), you get Activity Per Rep. Just like individual activity metrics, Activity Per Rep by itself provides a skewed view of the representative. The numbers might look good, but are deals actually being made?
3. Win Rate
Win rate reviews the number of deals won, divided by the number of deals created. Win rate is another metric that can be effective if used properly. You can determine certain sales patterns or whether current deals and customers are the appropriate targets. But when used to assess your rep's sales performance, negative behaviors can occur.
Win Rate: # of Deals Won / # of Deals Created
On an individual rep level, win rate creates pressure to insert deals into the sales pipeline. Qualified leads who aren't yet ready to buy might be filtered out in exchange for quick wins with leads who are not going to add the same value. Reps may also leave open deals in the pipeline with wins and losses to affect the overall win rate.
Notice the trend? Each of these metrics creates a vacuum in which sales representatives are incentivized to work as fast as possible. Value and meaningful customer conversations are sacrificed for speed. This practice will ultimately affect your organization's long-term growth. Fortunately, there are metrics you can implement that look to the future and encourage a better customer experience.
Aligned sales incentives
Sales incentives should be aligned with your long-term strategy. Customer-centric metrics help accomplish this goal.
Tracking the most effective customer-centric metrics will ultimately depend on your company structure. The overall goal is to motivate your reps to sustainable processes. Sales are naturally important, but the way your sales reps source and close those sales are even more important. It requires strategic thinking on the part of management.
To begin determining critical metrics for your team, choose a main lagging indicator that you would like to improve, such as total sales volume. You can then use leading indicators — or proactive supporting metrics — to work backward. Although more difficult to measure, leading indicators provide clear expectations for your sales teams to follow.
Here are three customer-centric metrics that can incentivize your sales team to focus on the customer experience.
4. Lead Response Time
Lead response time measures the amount of time it takes your sales rep to respond to contacts, divided by their number of contacts. An often overlooked metric, lead response time encourages sales reps to put the customer first.
The faster leads are responded to, the more likely they are to purchase. Quick lead response time helps eliminate the opportunity for the potential customer to connect with a competitor or change their mind. This can typically happen if leads aren't responded to in less than 24 hours.
Lead Response Time: Sum of # of Min/Hrs/Day to Respond to All Contacts / # of Contacts
Research has found that sales reps are 7 times more likely to have meaningful customer conversations if responding within an hour. Encouraging a faster lead response time incentivizes your sales reps to touch base early and lays the foundation for a positive customer experience.
All leads will not be equal, and the quality of the lead conversation, as well as follow-up conversations, should not be overlooked. The point of this metric is to nurture your leads.
5. Lifetime Value (LTV)
A customer-retention metric, lifetime value tracks the amount of money that a customer brings in during his or her time with the organization. Specifically, it measures a customer's total revenue generated, minus the costs associated with bringing on and keeping that customer around. If you recall from our post about important sales metrics, lifetime value (LTV) answers important strategic questions, such as:
– Which customer segments should we focus on?
– How should we allocate sales headcount?
– What channels should customers purchase through?
– What is my sales-territory strategy?
Lifetime Value: Average Total Revenue Generated Over Customer Lifetime – Average Associated Costs per Customer
The longer a customer stays with a company, the higher the LTV. Focusing on retaining the customer and lengthening the time between sale and cancellation is the goal. Sales reps, as well as customer support reps, are thus incentivized to invest quality time in their customers. This costs less than acquiring new customers.
6. Stage-by-Stage Conversion Rate
Your stage-by-stage conversion rate tracks which stages in your sales funnel customers are being lost. It causes sales reps to focus on customer retention in the pipeline and provides an incentive to look at customer needs rather than rushing the sale. The basic stage conversion rate is:
Stage Conversion Rate: # of Opportunities That Ever Existed in the Later Stage / # of Opportunities That Ever Existed in the Earlier Stage
For example, let's say that between the demo stage and the trial stage in your sales funnel, one of your sales reps is achieving a 25% conversion rate. This metric can be compared to the entire sales-team average.
If the rate is low, you determine the reasons the rep may be struggling and why customers are being lost. The rep can then make actionable improvements based on the data. The numbers tell a story and provide a visualization of progress for your sales team.
Use the right metrics as sales incentives
Effective, actionable metrics drive the focus of your sales team toward quality interactions. Whatever metrics you decide to implement, they should have a clear purpose and incentivize positive ways to connect with the customer.
Note that your metrics will change over time, right along with your organization, and need to be carefully monitored. Also, introduce main performance metrics with your sales team early on, such as through a sales-team leaderboard. Quality, customer-centric metrics and reinforcement can make a major difference in closing successful sales, motivating sales reps, and driving your message of long-term wins over short-term gains.